They say the best kind of savings for the future is when you invest your money into something that will eventually earn you passive income. And for those who mean to retire young to enjoy the benefits of traveling the world, having a property that others pay for to rent is one of the best things life has to offer. The value of the property depends on various factors like its location. The real estate market in Edmonton is at its best, so if you are a landlord, you are in a pretty excellent and financially-stable position.
But every landlord must understand that tax involved in owning a property and having it rented out. The least that you want is to be charged more just because you weren’t paying right or you weren’t paying on time. Penalties and interest can mean losses for you. So before you lose all your passive income to nothing, here are three facts every landlord must-know:
Fact 1: Business Or Rental Income?
Most landlords forget about the difference between these two, but the Canada Revenue Agency defines the difference between the two. When you have your space rented out and only provide water, electricity, parking and laundry facilities, then you simply are a landlord. However, if you begin to offer more services that can be likened to that offered by the hotels, then the nature of your business and property changes altogether. There is no gray area between these two. The government requires you to pay different rates if you consider your business as a business and as a rental for income.
Fact 2: Form T776
This is the form you file to declare the income you get from the rental of your property. It is also referred to as the Statement of Real Estate Earnings Form. There is no one form for all the properties that you have for rent. Instead, you must file a form as such for every property that you have for rent. The form also requires you to solve for the net income as follows: calculate all the expenses incurred in the maintenance of the property including Capital Cost Allowance (CCA) and deduct it from the gross income from all the rent paid.
Fact 3: Deductible Expenses
Not all expenses that you have every month is considered deductible expenses. Instead, you will have to file the deductibles sheet on your property. Here is a quick list of those deductibles that are permitted by the government:
· Maintenance and repairs
· Property taxes
It is essential that you present documents such as receipts upon filing for a claim. These will serve as the proof of such expenses.
How do you get your rental taxes right? Keep these facts in mind. Or better yet, ask help from those who know better. It is always best to consult with an accountant you can trust. After all, these facts are general and that each landlord may have a different situation altogether.