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Tax Tips - March 7, 2003

Rental Income and Expenses
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If you received income from rental of real estate or other real property, you have to file a statement of income and expenses. If you are a co-owner of the rental property, your share of the rental income or loss will depend on your share of ownership. Generally, you can deduct any reasonable expenses you incur to earn rental income. If you rent part of the building where you live, you can claim the amount of your expenses that relate to the rented part of the building. You have to divide the expenses that relate to the whole property between your personal part and the rented part. You can split the expenses using square metres or the number of rooms you are renting in the building, as long as the split is reasonable

There are two basic types of expenses:

Current expenses: operating expenses that provide a short-term benefit, such as cost of repairs you make to keep a rental property in the same condition as it was when you required it. You can deduct current expenses from your gross rental income in the year you incur them.

Capital expenses: providing a benefit that usually lasts for several years, such as costs to acquire a building, furniture, or equipment to use in your rental operation. You cannot deduct the full amount of these expenses in the year you incur them. Instead, you can deduct their cost over a period of several years as capital cost allowance (CCA). The amount of CCA you can claim depends on the type of rental property you own and the date you acquired it.

Current expenses normally include:

	Advertising
	Insurance
	Maintenance and repairs
	Management and administration fees
	Motor vehicle expenses
	Office expenses
	Legal, accounting, and other professional fees
	Property taxes
	Salaries, wages, and benefits
	Travel
	Utilities
	Lease cancellation payments

There are special rules you have to follow while claiming the expenses on insurance, interest, salaries, motor vehicle, and travel costs. For example, if your insurance policy on your rental property covers for more than one year, you can only deduct the premium that relate to the current year, and have to deduct the remaining premiums in the year to which they relate.

Special rules also apply to legal fees. You can deduct fees for legal services to prepare leases or collect overdue rents, but cannot deduct them from your gross rental income. However, you can deduct amounts paid for bookkeeping services, audits of your books and records, and preparing financial statements. You may be able to deduct fees and expenses for advice and help to prepare your income tax return and any related information returns. You can deduct these fees if you needed the help because of your rental operation.

You must keep detailed records of all the rental income you earn and the expenses you incur, and have to support your purchases and operating expenses with invoices, receipts, contracts or other supporting documents. You do not have to send the records when you file the return, but you should keep them in case CCRA ask to see them. Records must be kept for six years from the end of the taxation year to which they relate. All or part of your expenses may be disallowed if you do not have receipts or other documents to support them.