Rental income refers to the money earned by individuals from renting out their properties to tenants.
It is an important source of additional income for many individuals and must be reported to the Canada Revenue Agency (CRA) for tax purposes.
The CRA has specific guidelines and procedures in place to ensure that rental income is accurately reported and taxed.
How is Rental Income Defined by CRA?
The CRA defines rental income as the money or value received for renting out a property that you own.
This includes income from houses, apartments, condominiums, and other properties.
The CRA requires you to report rental income on your tax returns.
This applies to renting out a portion of your home or an entire property.
Even if you rent out your property for a short time, such as through Airbnb, it is still considered rental income and must be reported.
Not reporting rental income can have serious consequences.
Accurately reporting all rental income is important to comply with tax laws.
Keeping detailed records, consulting a tax professional, and staying updated on tax laws are important for reporting rental income accurately.
How Does CRA Know About Rental Income?
The CRA obtains information about rental income through various methods, including:
- Many provinces have rent credits for tenants, which require the tenant to provide details of the property they are renting and the landlord. In Ontario for example this is done through Ontario Energy and Property Tax Credit (OEPTC). In Quebec it is done through the Solidarity Tax Credit.
- If you own multiple properties and therefore have multiple property tax rolls under the same name, the CRA may request you to provide details relating to the use of each property.
- Abnormalities like very low income but owning multiple properties will get flagged
- In some cases, individuals may receive rental statements from property management companies or rental platforms, which are reported to the CRA as income, so they are aware there are matching landlords on each of these properties.
- The CRA conducts random audits or targeted audits throughout the year.
- The CRA may exchange information with other government agencies, such as land registry offices or municipal authorities, to track rental income and ensure compliance.
Tips for Reporting Rental Income Accurately
Keep Detailed Records
Keeping detailed records is crucial for reporting rental income to the CRA.
It ensures accurate reporting and can be useful in audits or discrepancies.
- Track rental income: Keep detailed records of all income, including rent payments, security deposits, and additional fees. This helps ensure accurate reporting of rental earnings to the CRA.
- Document expenses: It is important to keep detailed records of expenses such as mortgage payments breaking out the interest portion, property taxes, insurance, repairs, and maintenance costs. This will help in calculating net rental income and deductible expenses accurately.
- Retain receipts and invoices: Make sure to keep copies of receipts, invoices, and bills for repairs, renovations, property management fees, and other costs.
- Preserve capital expense documentation: It is crucial to maintain records of significant improvements or renovations as they may be eligible for capital cost allowance (CCA) deductions, which can effectively reduce taxable rental income.
- Manage tenant information: Keeping detailed records of tenants’ names, contact details, lease agreements, and correspondence is essential. This will help in tracking rental periods, rent increases, and resolving any tenant-related issues.
- Keep financial records: Retain bank statements, financial records, and any documents showing rental income deposits and related expenses. These provide further evidence of rental income and expenses.
Consult a Tax Professional
When it comes to reporting rental income, it is always a wise choice to consult with a tax professional.
By doing so, you can benefit from their extensive knowledge of the specific tax laws and regulations pertaining to rental income.
Not only can they offer guidance on ensuring compliance with the CRA but they can also provide advice on deductions, credits, and any recent changes in tax laws.
