The vast majority of rental buildings are in the so-called "plex" market -- duplexes, triplexes and so on. They are typically owned by sole-proprietor landlords who occupy one of the units and rent out the others.
Louis Robert, a financial planner with Centre Financier Carrefour, in Montreal, helps dozens of landlords complete their tax returns each year.
According to Robert, many landlords find that taking care of the accounting, paperwork and tax returns are among the hardest parts of owning rental property.
"You have to look at it like a small business," says Robert. "And as with a small business, you have to file a statement of revenues and expenses for your rental property with your return each year."
Plex owners can benefit from a slew of deductions related to the apartments they rent. A duplex owner who rents an apartment that accounts for half the square footage in a building, for example, can deduct half of his eligible operating expenses.
These include repairs, municipal taxes and a portion of the mortgage interest, as well as administrative and accounting fees.
Building owners can also deduct capital cost allowances related to depreciation on the portion of the building that is rented. But Robert advises building owners to think twice before taking advantage of this potential tax-saver.
"Although you can deduct depreciation expenses each year and it will reduce your tax burden, you should be careful," he says.
"Because when you sell your property you will be subject to a taxable gain from recaptured depreciation as well as capital gains taxes. And not many building owners plan for that."
According to Robert, only about 20 percent of his clients claim capital cost allowance deductions.
Here are some other advantages available to rental property owners:
Home Buyers' Plan
The Home Buyers' Plan enables you to withdraw as much as $20,000 from your RRSP to buy or build a home without paying any tax on the withdrawal.
In the case of a couple, the amount rises to $40,000. In both cases, the withdrawal must be paid back in installments over a maximum period of 15 years.
You can read more about the Home Buyers' Plan here.
Peter Diekmeyer is the Montreal Gazette's management columnist.
|-- Posted: Apr. 5, 2004