|
|
| *The Commerce Journal>>>Canada Taxes |
In Canada How Can buying rental property be used to lower personal income taxes? |
In Canada How Can buying rental property be used to lower personal income taxes? If you buy the rental property personally, then any net rental losses will decrease your taxable income, and thus your personal tax payable. It is very possible (especially in the first few years of operation) to generate a net tax loss, despite earning positve cash flow. This is because in computing your net rental income, you get to deduct mortgage interest, property taxes, 4% per year depreciation deduction on the building (this is known as the CCA deduction), repairs, management fees, utilities, etc. A much used strategy is paying someone within your family in a lower tax bracket some reasonable amount of management fee and have that person manage the property for you. Be careful that you don鈥檛 go over what is reasonable and that the person you paid really do do actual work, or you will be committing tax fraud. Also, note that if you take CCA deduction on your rental property, you generally cannot use the capital gain exemption on the property when you sell it in the future. In the long run, don't charge enough rent! If you are going to profit from this venture, you are going to pay taxes.Just think, the more taxes you pay, the more money you made. Sorry! Purchasing rental properties to rent out in Canada may or may not lower your personal income tax. Let's say, for arguments sake you purchase a house that you can make into two apartments, upper and lower. You keep them rented all year ( may or may not happen), the income is Reported on a T776 and if you look at the form the expenses for Mortgage Interest, utilities (if you pay them, not the tenant), insurance, maintenance, Property taxes plus some other minor things can be deducted from the income. I've given you a website where you can look at all this, just PDF the T776. If you purchase large items (over $200) like a refridgerator, these have a life over one year so you can write them off over a period of years (one half in the first year) this is CCA. It is possible to depreciate the building (not land), but I seldom recommend this because there is always recapture. Also if at sometime in the future you sell this rental at a profit it will trigger a Capital Gain from the time you purchased it, plus additions, minus costs of selling etc to arrive at this figure. Also the expectation from CRA is that all businesses should make a profit, they will allow a rental to slip into the negative for the first couple of years but after that expect to see a profit. So income over expenses, profit or loss, I would expect to profit, so no it would not lower personal income taxes. http://www.cra-arc.gc.ca/menu-e.html... The only way you'd do that is if you had a loss. You can't use losses from CCA to create a rental loss, either. Also, you have to be renting the property to make a profit - buying a property and renting it out at a perpetual loss may (will likely) result in the denial of your rental losses (you can't buy something and rent it ou at a really low rate to friends, and then expect to lower your taxes, for example). http://www.cra-arc.gc.ca/e/pub/tg/t4036/... |
| Tags |
| Spain Taxes Singapore Taxes Mexico Taxes Ireland Taxes India Taxes Germany Taxes Canada Taxes Australia Taxes Small Business Renting & Real Estate |
| Related information |
Just a word of advice. Sometimes Canada Post will charge you a service fee for collecting the tax. If UPS delivers it, expect a huge bill called a "brokerage fee" Don't... Vacation pay is a standard deduction for most employees, based for most at 4%. Some contracts negotiate a higher rate. It is there, so when you take holidays you still have pay coming in ... If he is actually an employee, then no, you can't just pay him as a contractor. This determination is based on the relationship between you, and not just what you decide to call him and... Actually CRA has a calculator, but you should know that each province has a different rate of provincial tax. Here is the caculator: ... I'd assume you will need a Canadian answer. You can actually check the CRA website regarding deductions - they have an online calculator that at least covers the federal deductions fo... As a Canadian living and working in the US you may or may not have to pay US taxes. Double check here: ... you can get prepaid credit card with your parents permission. if your parents are ready for it, apply online at: ... Many employer in the construction industry pay cash to the workers, treating them like independent contractors. By doing this, they can avoid complying with labour laws, avoid paying the e... |
Commerce Categories--Copyright/IP Policy--Contact Webmaster |