Keeping a Written Record of Your Rental Income and Rental Expenses

If you have rental income to declare, you can claim expenses incurred to earn that rental income. You can deduct any reasonable expenses. Some expenses are current expenses, and some are capital expenses. Others are specifically excluded. However, you need to keep track of your expenses in writing and put your receipts in a safe place.

Current Expenses vs. Capital Expenses

The two basic types of expenses are current expenses and capital expenses. Current expenses are the day-to-day costs related to the income property. However, capital improvements that add long-term value to the property, such as permanent additions to the building, are not immediately deductible as a whole but rather depreciated over time.

Prepaid Expenses

Expenses paid ahead of time, such as an insurance premium for the year on your rental property, are called a prepaid expense. The current expense that is deductible is the portion of the premium that covers the rental period you are claiming on your taxes.

Usual Expenses

Amounts for advertising the availability of your rental property are deductible. Expenses, such as legal, accounting and professional fees; maintenance and repairs, such as painting; rental management fees; property taxes; utilities; and other reasonable expenses related to the rental property are also deductible. You can deduct car expenses only when they are reasonable and necessary and you have receipts. There are also specific rules that apply to when you own only one rental property as opposed to two or more; be sure you’re aware of any and all tax regulations regarding your individual situation.

Interest and Fees

You can deduct interest on money you borrow to buy or improve your rental property, as well as interest you pay to tenants on rental deposits. If you pay a fee to lower the interest rate on a mortgage, the deduction is spread over the remaining original term of the mortgage or loan. For example, if the term of your mortgage is two years, and in the second year you pay a fee to reduce your interest rate, it is a prepaid expense and deducted over the remaining term of the mortgage.

Expenses That Are Not Deductible

Although many expenses related to rental income are deductible as current expenses, there are some the CRA specifically does not allow. These include land transfer taxes you paid when you purchased the property. They are part of the cost of the property and can usually be included in the CCA calculation for the building. You cannot deduct the repayments of principal on your mortgage or loan on your rental property, nor can you claim penalties shown on your notice of assessment from the CRA. The value of your own services or labor is not a deductible expense. If you live in the building you rent out, you can only claim the amount of your expenses associated with the rented part of the building.