The tax lessons every landlord learns the hard way

Let me tell you about my first year as a landlord. When I bought my first rental property, I was excited about the extra income, but I quickly realized there was more to it than just collecting rent. Taxes, paperwork, CRA forms, it was overwhelming at first. However, with careful planning and a few hard lessons, I discovered you can save a surprising amount of money on taxes while staying on the right side of the Canada Revenue Agency (CRA).

One of my first surprises happened during tax season when my accountant asked about every dollar I earned from the property. All rental income needs to be reported to the CRA, even if I was only subletting or sharing ownership with a friend.

Luckily, my accountant showed me that being a landlord is about knowing what you can deduct. I kept a folder full of receipts for anything related to the rental property. If the expense were connected to earning rental income, and I could prove it, I learned I could deduct it. There were even a couple of slow months when my expenses exceeded my rent income, and I was able to claim that loss against my other income. That was a relief!

Here’s what I learned about the kinds of expenses I could deduct:

• Mortgage interest was deductible, but principal was not. I deducted the loan interest on the property I bought.
• Property taxes – Every time I paid a property tax bill, I kept the receipt. Those bills really added up, but at least I could deduct them on my taxes.
• Repairs and maintenance – I learned that expenses like repainting the apartment and fixing a leaky tap were deductible. When I had to replace the old furnace, my accountant explained that major improvements like that are considered capital expenses. I could only claim a small amount each year as depreciation.
  
• Utilities – In the first year, I paid the water bill myself, so I was able to claim it as a deduction. When the next tenant moved in and started paying their own utilities, those expenses were no longer deductible.
• Home insurance – I made sure to get proper insurance for my rental, and those premiums were deductible, too.
• Property management fees – The year I chose to hire a property manager. I realized their fees were tax-deductible.
• Advertising expenses – Running online advertisements to attract new tenant’s costs money, but every dollar spent on advertising is deductible.
• Office supplies and property management apps dedicated to rentals were deductible.
• Travel expenses – For every trip to the property for repairs or showings, I kept a mileage log. Those trips added up, and my accountant showed me how to deduct a portion of my car expenses.
• Depreciation (Capital Cost Allowance – CCA) – My accountant advised me to be cautious about claiming too much depreciation. Reducing your taxes now might result in having to pay more capital gains tax when you sell, as the CRA could add back the depreciation to your capital gain calculation.

At one point, I tried renting out my place short-term on a home-sharing site. This experience introduced a whole new set of tax considerations. I learned that the CRA might treat this as business income and that it is fully taxable. They have different tax rules, and even if it is just a few weekends a year, you must report them. If you earn over $30,000, you also need to register for GST/HST. That was a revelation!

I have heard horror stories about CRA audits, so I keep at least seven years’ worth of receipts, invoices, and contracts just in case anyone ever comes knocking.

A fellow landlord once told me about the surprise of selling his rental he did not realize that half of his profit would be taxed as a capital gain. After hearing his story, I made a note to consider topping up my RRSP if I ever sell, to help offset the tax hit.

If there is one thing I have learned, it’s that understanding tax deductions and keeping good records are the keys to paying less tax and sleeping peacefully at night. I cannot imagine doing this without an accountant, and the best part is that their fees are deductible too!