howardk

Just wondering if you own a rental property,can you offset any losses against income tax....so if your rental income did not cover the mortgage for example can this loss be set off against income tax...also depreciation,wear and tear,repairs etc etc.......cheers

Surrey Expat

Expenses can be offset, as can capital losses, if this is purely a rental and assuming it has been declared as income. However there is an expectation of profit, so there may be questions asked if rent does not meet the cost of the mortgage, particularly on an ongoing basis.

If the property is only used to rent out (not lived in by the owner), then 100% of repairs, taxes, utilities, improvements etc can be off set, not sure what depreciation (and wear and tear) you can claim on a house. Some larger improvements may not be 100% deductible in one year, you may have to use capital cost allowances, such as for a new roof, septic etc. If you were able to depreciate part of the buildings, then disposed of it at a higher than depreciated value, you'd get stung for the difference anyway, so no real advantage in the long run.

An accountant should be able to advise you and prepare your taxes for you to make sure you take advantage of what is available.

G77

Was the OP referring to a house in Canada or UK?

We're leaving our house in the UK for rent and we won't make a profit on the rent, so all of the agent fees, repairs etc are coming out of our pockets..... Can we offset some of those against Canadian tax?

Helen Parnell

I have a few clients who have houses in Calgary which they rent, and they live in the UK.

You send all the details to Revenue Canada, they esitmate your net gain and then the property manangement company every month has to send 25% of the net gain to the goverment every month.

By the time you take into account, interest on the mortgage, insurance and property management fees (I charge a very reasonable rate) there is usually very little left, so I end up send 25% of very little.

Surrey Expat

As a Canadian tax resident you should be declaring the income on your return. Expenses associated with earning that income are deductible, wherever they occur, however you should get receipts. If you make a loss, that may well be able to be offset against earnings in Canada. If you make a loss for too long though expect questions.

Get a written valuation of the house prior to landing in Canada, this will be the basis for capital gains when and if you sell it. Any property overseas valued at $100,000 or more has to be declared on your CDN tax return.

Biiiiink

I claim everything - management fees, lease fees, advertising costs, all utilities, property tax, condo fees, repairs, replacing things like carpet and furniture, accountant fee...

bazzz

I can't see me making a net profit on my flat any time in the next ten years or so. Which is fine, as I think it'll be a reasonable long-term investment. When are CRC likely to start asking me questions about my continued lack of profitability?

JonboyE

As everyone has said above, yes you can claim losses on a rental property, whether in the UK or Canada, against your Canadian income as long as:

1 It is a commercial transaction at a fair market rate. You can not claim losses if you are renting the place to your mother at $1 a month!

2 There must be a reasonable expectation of making a taxable profit at some point. For example, In Vancouver property prices are so high, and rental yields are so low, that in the first few years the mortgage interest will likely be higher than any rent received. However, as Canadian mortgages require interest + principal payments, over time the mortgage interest amount will reduce each year and the rental will become profitable.

If the property is in the UK and you have an interest only mortgage it is not a great idea to volunteer this information to the Canada Revenue Agency.

Also, if speaking to the CRA, it is always wise to pretend that the purpose of owning an investment property is to generate rental income and not to benefit from the rise in the capital value of the property. Of course, the long-term rise in the capital value is the main reason people hold real estate as part of their investment portfolio but if the CRA determine this is the main reason you own the investment property they can deny any rental losses as a deduction against current income. Any losses would then be carried over and deducted from the capital profit when you sell the property. This is very bad news because a) you want the tax deduction now, not years in the future and b) only half of a capital loss is allowable.

JonboyE

I don't know for certain.

I would guess that if you showed a gradually declining loss over the next ten years you will be OK - if the CRA look at your file they will see that it should become profitable at some point.

If you showed stable or increasing losses each year you might want to start nervously looking over your shoulder after three or so years.

You could also be selected for a random audit at any time. I don't think it is a worry. As long as you can demonstrate that it can make a taxable profit at some point in the future you should be fine.

bazzz

Fair enough. I'm more interested in using it as a source of income when I retire, so right now the losses are just part of investing in that. Incidentally, do you have any idea what the tax implications would be if I was to remortgage at some point in the future to release a bit of equity? The property is in the UK.

Surrey Expat

I never imagined you were a closet capitalist!

JonboyE

You would need to prorate the interest between that payable on the original loan and that payable on the equity released. The part of the interest that relates to the original loan continues to be deductible against the rental income.

If you use the equity released to earn new taxable income e.g. to start a small business, you could claim the interest expense against the business income. If you use the equity released for personal items then it is not deductible.

bazzz

I think if I was I wouldn't be losing money hand-over-fist on such a dodgy property in a dodgy area. Still, it's in an "Olympic Borough" so hopefully next time I see it on the news it won't be for the arrest of a bunch of wannabe suicide bombers.

bazzz

Thanks. I'd karma you but apparently I have to "spread it around".