There are many ways to earn money without doing any work. Which is the best way? Arguably, to own property and rent it out. It’s easy, the value of the property depends on where it is located, and the real estate market in Edmonton is booming. So, as a landlord, you are in a pretty good position.
And, one of the many things that you have to worry about is tax.
You have to ensure that you are your paying the tax right so you don’t incur any penalties or fines. Here are some tips to help you do just that.
1. Rental Income or Business
First of you have to decide whether your property rental qualifies as a business or not. According to Canada Revenue Agency (CRA), the more services you provide, the higher the chance you qualify as a business. It is considered not a business if you rent a space and provide the basic amenities like heat, light, parking, and laundry facilities.
As long as you are not providing the same number of services offered by a hotel, you should be fine.
2. The T776
T776 is the tax form you need to file for your rental income. It is a Statement of Real Estate Earnings Form. You can’t fill up a single form for all your properties, rather, you have to fill up one form for each property that you have on rent.
The net rental income is calculated by deducting rental expenses and your capital cost allowance (CCA) for the rental property from your gross rents.
3. Deductible Expenses
You can claim tax deductions on your property. Here’s a quick list of what all you can claim tax deductions on:
- Legal, accounting, and other professional fees
- Management and administration fees
- Maintenance and repairs
- Salaries, wages, and benefits
- Property taxes
- Car expenses
- Office and other expenses
It is also vital that you have documents, in the form of bills and receipts, as proof of these expenses.
4. The T2125
Don’t miss out on the T2125 form. It is a Statement of Business or Professional Activities Form that summarizes your property management income.
5. Miss Filing for Tax Deductions
The list of rental tax deductions is long so later on you may realize that you have missed something. So what can you do? Simple, you can file another return called T1 adjustment. You can consult an expert for the same, because filing T1 adjustment can be daunting as the filer must have all of the backup documents.
6. Record Keeping
You don’t run a business, but it is still advisable that you have a good record keeping system in place. Every piece of document that involves your rental property should be saved. You never know when it will come in use like an income tax audit.
Stick to these tips to ensure you get rental tax right. However, it is always best to consult with an accountant as each landlord’s situation is different.