RENTAL INCOME VS BUSINESS INCOME
WHAT IS THE DIFFERENCES BETWEEN RENTAL INCOME and BUSINESS INCOME:
Income from a business and income from property are subject to different tax treatment. Income Tax Act does not specifically define the term “business income” and “property income”.
From CRA perspective, the following two factors used to determining whether the income is rental or business:
Basic services: Basic services include heat, light, parking and laundry facilities
Additional services: Additional services to tenants include cleaning, security and meals
If the owner provides basic services CRA considers income received as rental.
WHERE WE REPORT THE RENTAL and BUSINESS INCOME IN THE TAX RETURNS:
Rental Income received during the year is reported on the form T776 “Statement of Real Estate Rentals”.
Business Income received during the year is reported on the called T12125 “Income from Business or Professional Activities”.
MAJOR ITEMS FOR RENTAL INCOME OR WHAT IS THE RENTAL INCOME
Rental income is income received from property
For each rental property, separate rental statement must be prepared
WHO SHOULD REPORT RENTAL PROPERTY INCOME
The person who owns the rental property has to report net income or loss on her/his tax return.
If the rental property owned by more than one-person, each co-owner has to report their share of income and loss on their tax returns.
Each co-owner must be listed on the rental statement, together with her/his percentage of ownership
Gross rental Income received during the year is reported on the form T776 “Statement of Real Estate Rentals”.
Accrual or cash method can be used to report rental income and expenses. However, the same method must be used every year to report rental income and expenses.
The taxpayer can incur two types of expenses; current and capital. Current expenses are the part of the daily activities of business and investment property. Current expenses are deductible in the year they are incurred. Capital expenditures are incurred to extend the life of the assets or property beyond its original condition. Capital expenses are deductible over the life of asset or property.
The following expenses, the taxpayer can deduct as current/operating expenses incurred to produce investment and rental income.
Accounting and legal fees
Repair and maintenance
Interest on money borrowed to purchase or improve rental property
Cost of supplies and janitorial work
Salaries and wages paid to security guard, superintendent and to other employees
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