While there are some special rules with respect to rental properties, most day to day operating expenses are deductible. Items such as utilities, insurance, interest on a mortgage used to purchase the property, advertising for tenants, legal costs of setting up a lease, property taxes, accounting fees, commissions paid to a real estate agent to attract tenants, general repairs and maintenance and condo fees where applicable are deductible. You may also deduct travel expenses to collect rents, deal with tenants and perform repairs and maintenance so long as the distance between your normal residence and the rental property is within your municipality. You cannot for example deduct the cost of a trip to Florida to check in on the condo you rent. One of the most contentious issues is whether or not an expenditure is capital in nature or a regular expense. There are general guidelines. The normal rule of thumb distinguishes between a repair and a betterment. A repair generally brings something to its original condition. A betterment improves upon the original condition. The timing of work is also an issue. Repairs performed annually are perfectly acceptable, however repairs performed too prepare a rental property for rent may not be. An example would be the purchase of an old house that needed many repairs prior to renting it. These costs would more than likely be added to the cost of the property as opposed to directly expensing them.
An optional deduction is depreciation (CCA). The cost of the property may be deducted over time. Only the building portion of the cost may be depreciated, therefore an allocation between the land and the building must be made. Each individual’s personal circumstances will determine whether or not this deduction is taken in any year.
CRA publishes a guide which sets out in detail the rules with respect to rental properties.
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