Business Income, Self Employed and Small Business, Tax Tips & Advice

How to Calculate Rental Income for Your Tax Return

1 Comment 17 September 2012

How to Claim Rental Income on your tax returnWhen you’re filing your yearly income tax, you have to declare every cent you have made over the past tax year. If you’ve gotten income from renting out property, that means filling out a  Form T776 Statement of Real Estate Rentals as part of your T1 Income Tax Form.  This form is included inTurboTax, which will walk you through claiming your rental income and expenses step-by-step.

The tax benefit of having a rental property is that, assuming you are renting it out in expectation of making a profit, you can write off expenses associated with your rental property against your income, meaning that your rental property expenses can offset your increased income, or, if your expenses exceed your rental income, the resulting rental loss can be deducted from your other income.

Nor can you claim a rental loss if you’re allowing someone to live in your rental property and pay you less money than a “usual” rent for their accommodation would be. The Canada Revenue Agency considers this to be renting below Fair Market Value.

However, assuming neither of these things is true, the first step in determining whether you have a rental income gain or loss is to calculate your rental income.

Here’s what you need to know to be sure you’re coming up with the right number.

How Do You Calculate Rental Income?

First, determine if the income is business income or rental income.

The Canada Revenue Agency treats rental income from property and rental income from business differently, so you need to know which category your rental income falls into.

Generally, whether or not your rental income is from property or business depends on how many services you provide to tenants.  If you provide more than basic services,

“which, by custom, have come to be regarded as an inherent part of that kind of property rental, e.g.: heat, water, elevator service, telephone in lobby, indoor or outdoor parking spaces, laundry room with equipment for tenants, maintenance of the building itself…”

then you will likely be considered to be carrying on a business rather than just receiving income from rental property. Some of the additional services mentioned in Canada Revenue Agency documents include supplying tenants with food and drink, maid and/or cleaning services and delivery service. See  the IT434R – Rental of Real Property by Individual guide on the CRA website for more details.

If you do have rental income from business rather than from property, you will be filling out Form T2125, Statement of Business or Professional Activities, which is included in the Canada Revenue Agency’s http://www.cra-arc.gc.ca/E/pub/tg/t4002/README.html   T4002 – Business and Professional Income Guide, instead of  Form T776, Statement of Real Estate Rentals.

Stay tuned – next we’ll show how to be sure you’re including all your rental income, and the two methods of accounting.

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1 comment

  1. bk says:

    We bought a vacation property in sep 2012. it was used as a rental and we will continue to rent this out. We did repairs and upgraded in oct through dec 2012 so had no rental income. can we deduct any expenses on our 2012 income tax. for 2013 we have already recieved rental income and know we can deduct expenses against this income for 2013. thoughts?


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