If you bought a property to rent, you have probably wondered what expenses you can write off. The answer is simple: Was the expense actually used to earn income? If so, there is a good chance it is deductible.

Purchase related to expenses

These are the expenses you assumed to buy the property.

• Transfer Tax
• Inspection fees
• Valuation fees
• Notary fees
• CMHC Premium

The deduction rate is the biggest headache of these expenses because they are not necessarily 100% deductible. For example: the notary fees paid to obtain the mortgage are deductible at 20% / year but the fees to take possession are deductible at 4% / year only.

Non-resident investors

Several ”special” rules are often unknown to non-resident. In terms of the expenses forgotten by the NR, travel expenses are top of the list:

• Airplane, hotel, meals
• Visa application

But that is not all, we have helped several NR clients who had no idea about the tax rules for rental properties: read the article.

Furnished and semi-furnished

Furniture and appliances are also deductible and yet they are among the great forgotten ones.

• Furniture: sofa, bed, table and chairs.
• Appliances: Fridge, oven, washer/dryer…
• Small furniture such as curtains, TV, carpets…

But not only that. If you were able to deduct the goods you paid for your tenants, you may as well deduct the services:

• Internet, phone, cable…
• Management fees (property manager, Airbnb, real estate agent’s commission…)

Depreciation expense

Many ” fake gurus ” will tell you not to deduct the depreciation in order not to pay too much tax when selling. Before trusting them, you have to analyze 2 data:

1. The marginal rate
2. The expected timeframe for the sale

The depreciation expense is beneficial for those who:

• Have a high marginal rate:
  • Expected tax on sale at or near the current effective rate.
  • Expected tax on sale lower than the effective marginal rate.
• Do not plan to sell in the short term to take advantage of:
  • Inflation
  • Return on reinvestment of the tax reduction related to the depreciatio
  • Possible future tax reduction given the current historically high tax rates

Depreciation is a notional expense related to the use and obsolescence of an asset. As a general rule, 4% of the purchase cost of the property can be deducted as a depreciation expense each year.

Nominee agreement (new since October 2020)

If you are the owner of a property but you are not the usufructuary (do not receive any rental income), you must inform Revenu Québec. If you do not disclose this information, beware of penalties that can reach more than $5,000.

Conclusion

In addition to forgetting expenses, homeowners also tend to forget:

• To produce the statement 31
• To not do tax planning on the sale to reduce the capital gain
• To be denied depreciation because previous tax returns have not been kept
• And many other things

Need help filing your rental property tax return? Don’t hesitate to call on our accountants.