Question 1

How are rental property expenses deducted on personal taxes?

Accepted Answer

Eligible expenses — mortgage interest (not principal repayment), property tax, insurance, maintenance, utilities paid by the landlord, property management fees, and advertising — are reported on Schedule T776 of your personal T1 return. Net rental income or loss flows directly into your total income. Keeping organized receipts and a property-specific bank account significantly simplifies this process and protects you in a CRA review.

Question 2

What's the difference between capital and current expenses for landlords?

Accepted Answer

Current expenses maintain the property in its existing condition and are fully deductible in the year incurred — replacing a broken window, repainting, servicing the furnace. Capital expenses improve or extend the life of the property — a new roof, an addition, replacing all windows — and must be capitalized and depreciated over time (CCA Class 1 at 4% per year for residential buildings). Misclassifying a capital expense as a current one is one of the more common errors CRA flags.

Question 3

How does CRA tax flipping vs. long-term rental income?

Accepted Answer

Long-term rental income is taxed as income; when you sell a rental property, the gain is a capital gain (50% inclusion rate). However, CRA's anti-flipping rule (effective 2023) deems any property sold within 12 months of purchase to generate fully taxable business income, not a capital gain — regardless of intent — with limited exceptions. Properties in the Markham/York Region market that have appreciated quickly can attract scrutiny if sold shortly after acquisition.

Question 4

Should I incorporate my real estate investments?

Accepted Answer

A corporation offers a lower tax rate on retained earnings (the Ontario small business rate), liability separation, and income-splitting opportunities via dividends to family shareholders. The tradeoffs are real: you lose the principal residence exemption inside a corporation, there are costs to maintain the corporation, and extracting money as salary or dividends creates its own tax layer. For most investors with one or two properties, personal ownership is still simpler. The case for a holding corporation typically strengthens when you own three or more income-generating properties or have significant surplus income to shelter.

Question 5

How does the principal residence exemption work?

Accepted Answer

The principal residence exemption (PRE) shelters the capital gain on the sale of your home from tax, for each year the property was designated as your principal residence. You can designate only one property per family unit per year. If you own a cottage or secondary property alongside your home, careful year-by-year designation planning can maximize the total tax shelter across both. Since 2016, the CRA requires you to report the sale and designation on Schedule 3, even if the full gain is exempt.

Question 6

What's the Underused Housing Tax (UHT) and who files it?

Accepted Answer

The Underused Housing Tax is a 1% annual federal tax on the value of vacant or underused residential property owned by certain non-resident, non-Canadian owners. Most Canadian citizens and permanent residents are exempt from paying the tax but may still have a filing obligation if they own property through a corporation, partnership, or trust, or as a co-owner with a non-resident. Failure to file carries a minimum $5,000 penalty per property. If your ownership structure includes any of these features, we assess whether a UHT return is required for your Markham-area properties.

Real Estate Investor Tax Services in Markham

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Real Estate Investor Tax Services in Markham

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