Tax season has a way of sneaking up on us each year, and it’s never too soon to start thinking about how you’re going to file your taxes. Claiming your rental income as a landlord is a must, but are you making the most of the various expenses and deductions Canadian landlords are eligible for? And what can Ontario landlords specifically do to prepare? We’re liv.rent, and in this post we’ll cover everything you need to know about tax deductions for Ontario landlords, from eligibility to filing, answering all of your questions on the subject along the way.
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Types of tax deductions for Ontario Landlords
Rental income tax deductions are the same for all of Canada’s provinces and territories. We covered the many deductions available to Canadian landlords in our B.C.-specific guide, but let’s recap quickly here as well:
1. Home insurance
The premiums you pay for your rental insurance can be claimed on your taxes. Claim the full amount if you’re renting out your entire home, or the appropriate portion if you’re renting out a partial home or unit.
Mortgage interest and any money borrowed for construction, repairs, or to finance your rental property itself can all be claimed on your taxes. If you refinance a mortgage on the rental property for personal reasons, the interest on the additional debt is not tax-deductible.
Some costs associated with the purchase of a rental property may be eligible for a tax deduction. Closing costs, fees related to obtaining a mortgage, and real estate lawyer fees are all expenses that can be claimed.
4. Property taxes
Ontario residents can claim their rental property taxes paid to their municipality (e.g. Toronto, Brampton, Oshawa), either for the entire property or the portion that is being rented out.
5. Utility fees
Landlords can deduct the entirety of their utility payments for a separate rental property, or a percentage according to the portion being rented. Eligible utilities include hydro, heat, internet, water, and cable.
6. Property management fees
If you’re paying a property manager, or a superintendent or property maintenance personnel, you may claim their salaries as deductions on your taxes. Note that this does not apply to the value of your own services to the rental property.
7. Professional fees
Fees paid for legal services (e.g. preparing leases/addendums), accounting/bookkeeping, or collection agency fees are also eligible for deductions.
If you need to travel to perform your duties as a landlord (e.g. overseeing repairs, collecting physical rent cheques), any expenses you incur from getting to and from the property can be claimed. Note that hotel fees and food are ineligible.
You may deduct any costs associated with advertising your rental property, as well as any finders’ fees if you hired someone to secure a tenant.
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10. Vehicle expenses
If you’re frequently driving to and from your rental property to perform maintenance, you can claim expenses associated with your vehicle — within reason. Eligible vehicle expenses include fuel costs, maintenance and repairs.
How to claim rental property tax deductions
Thankfully, it’s easy for landlords and rental property owners to claim all of the deductions listed above. In fact, they’re included right within Form T776, which is the Statement of Real Estate Rentals, and is a form every landlord has to familiarize themselves with.
A list of potential expenses can be found on page 2 of this form, under Part 4 – Expenses. You’ll be prompted to specify the Total Expenses for each, as well as the Personal Portion. After adding these amounts up, you can calculate your total deductible expenses by subtracting the personal portion from your total expenses.
If you’re having trouble navigating your rental income taxes, be sure to consult with an accountant or tax expert to get more clarity. We’ve also made a video on the subject in collaboration with an Ontario-based Rental Tax Expert, which you can check out here to learn more.
Rental income deductions in Ontario vs. the rest of Canada
Generally, both taxes and deductions function the same across Canadian provinces & territories, so landlords need only get acquainted with federal rules and regulations before going to file their taxes. It’s worth noting that all of the deductions here apply to every rental property in Canada, and there aren’t any Ontario-exclusive expenses or deductions available.
For individual landlords, rental income is factored in as regular income and taxed according to your own marginal tax rate and thus also doesn’t vary by province. For corporations or businesses, each province has its own unique corporate income tax on top of the Canada-wide 38% tax on rental income for corporations. In Ontario, corporations making rental income will have to pay an additional 11.5% in provincial tax.
Frequently Asked Questions: Rental tax deductions in Ontario
How much are you taxed on rental income in Canada?
As specified above, Canadian landlords are subject to income tax based on their own marginal tax rate. Corporations and businesses on the other hand must pay a rate of 38% in taxes on their rental income, in addition to a Provincial corporate income tax that varies by province. In Ontario, this number is 11.5%.
Is it worth claiming rental income deductions?
In short, yes! Depending on how much you’re making, rental income can be taxed heavily in Canada, so landlords would do well to take advantage of the various expense deductions available to them. The majority of these deductions are for services and expenses landlords frequently use, so capitalizing on these and reducing your taxes at year’s end is always a wise move.
How do tax deductions work?
Tax deductions are included right within the applicable tax form (Form T776, in this case), and simply need to be filled out alongside your income as a way of calculating the gross sum.
How do I avoid paying tax on rental income?
Canadians earning money from their rental property are obligated to report their income correctly and in full each year, so in that regard, you absolutely cannot avoid paying tax on your rental income.
You can, however, reduce the amount you end up paying by taking full advantage of the deductibles available to you.
What happens if you don't declare rental income?
If you neglect to claim your rental income during tax season, you run the risk of facing fines, criminal prosecution, or in the best case, a hefty tax bill later on.
Do I need to declare rental income if I'm not making a profit on it?
In general, if you’re renting your property below market value, whether to a friend or a relative, or whatever the situation may be, you still need to report your rental income. This does get tricky though, as there are many intricacies to these situations worth looking into.
In one example, if you’re charging a family member a small amount of money for general upkeep, or to cover utilities or groceries, this amount does not need to be reported on your income. At the same time, you cannot claim a rental loss for this arrangement and are unable to deduct any associated expenses.
Additional resources for landlords
Hopefully, this article provides some clarity on the vast and complex subject of tax deductions for Ontario landlords. If you’re still uncertain about any aspect of the rental income taxation process, or deductions specifically, here are some additional resources from both liv.rent and the Canadian government’s own tax documentation:
- VIDEO: Landlord’s Guide To Property Tax Deductions
- The Complete User Guide To liv.rent For Landlords & Property Managers
- Rental Expenses You Can Deduct (Canadian Revenue Agency)
- Rental Income (Canadian Revenue Agency)
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