Having a basement suite in your home is a great way to earn some extra income, and there are some great tax deductions in the expenses! You can even claim a portion of your property tax and mortgage interest as tax deductible expenses! Read on to find out how.
Do I have rental income or business income?
In most cases, you are earning rental income if you rent space and provide basic services only. Basic services include heat, light, parking, and laundry facilities. Rental income requires form T776 to be filed with your tax return.
If you provide additional services to tenants, such as cleaning, security, and meals, you may be carrying on a business. The more services you provide, the greater the chance that your rental operation is a business. Business income requires form T2125, which will be addressed in a later post.
Do I have to charge GST?
GST is not chargeable on long-term rentals (e.g. a basement suite or condo with tenants for more than one month). If the rental is short-term accommodation (less than one month), the rental is taxable, unless the short-term rental is $20 or less per day of occupancy. However, you only have to register for GST if your expected sales will be over $30K for the year. If this sounds confusing, Coastal Tax can help you determine if you should register for GST!
What expenses can I claim?
- Interest (on Mortgage or Business Loan)
- Legal, accounting, and other professional fees
- Maintenance and repairs (Including small renovations – for large reno expenses, please discuss with your accountant)
- Management and administration fees (e.g. Strata fees)
- Motor vehicle expenses (I recommend tracking mileage related to Rental at $0.54/km)
- Office expenses
- Property taxes
- Salaries, wages, and benefits (including employer’s contributions) (Usually N/A unless you pay yourself a salary or someone else like a gardener who is your employee)
- Utilities (as long as they are paid by you and not the tenant)
- Other expenses (e.g. landscaping, condo fees)
What percentage can I claim of expenses?
If your rental is a suite in your personal home, the expenses that are related to the whole property will have to be adjusted for a business percentage. Common expenses are Mortgage Interest, Property Tax, and Utilities. To find the percentage of the expense that you can claim, use this formula:
Square footage of Rental Space / Total Square footage of Home = % of Expenses due to Rental
E.g. Basement suite 800 sq. ft. / Total Home 2000 sq. ft. = 40%
Property Tax $3200 x 40% = $1280 Tax deductible as Rental expense
How do I calculate the income?
Add up the total rent actually received in the year. If the rental is vacant or you occupied it for personal use, those months will be zero. Sometimes, people have the idea that vacant months count as a loss, or “negative income”, but the rental income for the month cannot be less than zero. The loss comes from actual rent received less expenses paid. If your expenses are higher than the rental income, you will have a loss.
For more information on Rental Income click here.
-Alicia Loewen, Coastal Tax