Need todecide how to handle rental income

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Returning Member

Need todecide how to handle rental income

I have a rental property in Ontario and am renting a room and use of shared space to a friend.

 

The rent seems at the low end for similar rentals in my area. My friend is claiming his rental payments on his taxes.  His share of the costs exceeds his rental payments, and probably will do for quite a few years.

 

It's not clear whether this is a shared expense arrangement or whether I should declare the rent and expenses.

 

5 Replies
Moderator

Need todecide how to handle rental income

All money you receive as a result of an accommodation sharing arrangement is taxable for income tax purposes and you should report it as rental income when you file your income tax returns.

 

As per CRA; 

You should report any income you receive from renting property or accommodation sharing on your income tax return and file Form T776, Statement of Real Estate Rentals with the Canada Revenue Agency (CRA). For help on filing a statement of rental income and expenses, go to Completing Form T776, Statement of Real Estate Rentals.

Make sure you keep detailed records of all rental income you earn and any expenses you incur to earn that income in case the CRA asks to see them.

How to deduct rental expenses on your income tax return;

Generally, you can deduct any reasonable expenses you incur to earn rental income. However, when you rent only part of a building where you live, such as a room in your house, you can claim only the expenses that relate specifically to the rented part of the building. This means that you have to divide generic expenses for the property on a reasonable basis, such as the percentage of the total living area that is being rented. You also have to divide the expenses in line with the proportion of time the room is rented.

 

Example: If your annual electricity bill for your entire home is $1,000 and you rent out a room in your home for three months, you cannot deduct the full $1,000 as an expense. If the area being rented makes up 10% of the area of your home and the room was rented for three months, then the allowable expense would be $25 (10% x 3/12 x $1,000 = $25).

For more information, see Expenses you can deduct.

Returning Member

Need todecide how to handle rental income

Thanks for the information.

One of my concerns was that it's probable that I won't make a profit on this rental in the near future, and CRA notes in your first link that "You cannot claim the expenses for renting part of your property if you have no reasonable expectation of making a profit."

 

An ancillary question has occurred to me - will I be able to claim the principal residence exemption on the property when I come to sell it, or will I need to pay capital gains on the portion of the property used as a rental?

 

Thanks again

 
Moderator

Need todecide how to handle rental income

If you are not claiming "rental" and it's just a cost-sharing arrangement, then the answer is "No" you will not have any Capital Gains.

Returning Member

Need todecide how to handle rental income

Thanks very much for your reply.

I'm still not clear on whether this should be treated as a cost-sharing arrangement or rental income given that I don't think I have a reasonable expectation of profit and the tenant is claiming the payments on his income tax return.

Moderator

Need todecide how to handle rental income

Unfortunately, we can only give you the options you need to make that decision. Please contact CRA and they will advise the best course of action for you. 

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