What To Know About Being A Landlord in Alberta

Becoming a landlord in Alberta requires a significant amount of responsibility – and a lot of money.

If you’re wondering if it’s worth it to become a landlord, Liu & Associates is here to tell you what it takes.

From how to be a good landlord to how rental income affects your taxes, this guide will help you determine if becoming a landlord is the right choice for you!

Is Being A Landlord Worth It Financially?

Becoming a landlord begins with investing in real estate, which involves factors such as a down payment and mortgage, as well as repairs and maintenance.

You will also have to consider the cost of insuring the property, and it will cost more if you don’t live in the building.

And as we mentioned, there are also repairs and maintenance, which can be a large expense if you purchase a larger building with many units.

As a landlord, you can’t ignore minor issues to avoid spending money. If a tenant needs something fixed, you have to fix it.

Plus, in between tenants, you may have to invest in fixing up a unit before you rent it again.

Now that we’ve talked about the ways in which being a landlord will cost you money let’s consider if becoming one is financially worth it!

As a landlord, you can earn a passive income in rental real estate, meaning that you don’t have to earn money simply by working for it.

Yes, you are responsible for maintenance and upkeep, but collecting rent requires no effort!

It’s also important to note that becoming a landlord offers you certain tax breaks you can use to offset the cost of repairs and renovations.

If you’re smart with your rental money, you can easily earn a guaranteed monthly income by becoming a landlord in Alberta.

How to Be A Good Landlord

Being a good landlord doesn’t mean becoming best friends with all of your tenants.

It requires that you balance care with business sense in order to ensure tenants are satisfied and continue to rent from you.

Here are some key traits of successful landlords:

Organization

Being a landlord means keeping track of many moving parts, from leasing to new tenants to dealing with maintenance requests and more.

This involves paperwork, such as forms, rental receipts, and repair receipts.

Having a structured system is key to staying organized as a landlord, so make sure you know where all your important documents are kept and develop a way to keep track of everything.

Communication and Understanding

While you can definitely consider being a landlord a business, you have to remember that you are renting to real human beings who call their units home.

In order to create positive relationships with your tenants, you have to communicate with them clearly.

This means responding to their questions and concerns as soon as you possibly can, as well as notifying them in advance if you are planning any maintenance or making changes to the rental policies.

You also have to be flexible when it comes to rules and policies – to a certain point.

Avoid being a pushover, but give your tenants reasonable leeway if giving in will solve more problems than it will cause.

For example, if your tenant contacts you because they have to pay the rent a couple of days late, a late rental payment is far better than the process of evicting a tenant, repairing the unit, and re-renting it.

Consistency

Whether you choose to be a flexible landlord or you prefer to stick to the rules, consistency with tenants is essential.

They should know what to expect from you as soon as they sign the lease and move in.

Holding different tenants to different standards can lead to resentment and tension, causing a high turnover rate.

Clearly state your policies in the rental agreement, and make sure this agreement is the same for all tenants. If you make any changes to the policies, apply the changes to each tenant.

How Rental Income Affects Taxes

If you are thinking about becoming a landlord, it’s crucial that you understand how rental income in Alberta works.

All net rental income collected in Alberta must be reported as income on your tax return.

This does not include any deductions for expenses such as insurance premiums, property taxes, and utilities.

Deductions

And, yes, you can make certain deductions on your taxes by being a landlord!

Here are some deductions you can make:

Property taxes
Insurance premiums
Utilities
Capital Cost Allowance (CCA)
Rental loss
Capital expenses
Current expenses

Some of these tax terms can be confusing, but to put it simply, you can capital expenses cannot be claimed as deductibles because they have a lasting benefit to your property.

However, they can be added to the tax cost of your property and claimed as a CCA over several years.

Current expenses often require regular maintenance so that they can be claimed as a deductible.

For example, if you add a deck to your rental property, the cost of the deck is considered to be a capital expense.

However, sanding and refinishing the deck is a current expense and can be claimed.

Filing Taxes

As a landlord, you can claim your rental income as a sole proprietor and not a business or partnership. If you do, you can claim the income on your personal taxes by filling out Form T776.

You can claim your expenses on this form as well.

Just make sure you keep all of your receipts from rent and expenses to ensure you file everything properly and avoid triggering an audit.

Becoming a Landlord in Alberta – Is It Worth It?

Here at Liu & Associates, we believe that with the right financial organization strategies, you can easily enjoy the benefits of becoming a landlord in Alberta!

But the only way to guarantee success as a landlord is to speak to a licensed tax professional.

Our team has the knowledge and expertise to help you maximize your earnings and tax return as a landlord.

Get in touch with us for more information!

What To Know About Rental Income in Alberta

In Canada, rental income is the income you earn from a rental property that you own and rent to someone else.

Typically, rental income comes from renting apartments, houses, and rooms but also includes office space and other commercial properties.

In this article, we are going to discuss everything you need to know about rental income in Alberta as an individual (not a business or trust).

While earning an income rental seems like a quick and easy way to make more money, there are many factors that you have to take into consideration, such as how to determine your rental rate and how to claim your rental income on your taxes.

We’ll also look at the benefits and risks of earning a rental income, as well as tips on how to save money on your rental income.

Determining Your Rental Rate

It can be difficult to determine what you should charge for rent. You want to ensure the cost is not too high so your rental property remains attractive.

However, you don’t want to price your rent too low and miss out on the additional income.

Check the Current Property Value

In order to calculate your rental rate, begin with the current property value (not the same price it was initially purchased at). This will give you an idea of how much the property is worth in comparison to other rental properties in the area.

Do Your Research

You should also look at comparable rentals in the area for similar properties by browsing rental listings that are the same size with the same number of bedrooms. You should also take the condition of the other properties into consideration.

Use This Formula

Now, take the current property value and multiply it by 1%.

For example, if the value of the property is $200,000, then 1% is $2000. This is a baseline rental rate you can then compare to the similar properties you researched.

Other Factors

There are other factors you should consider when determining your rental rate, such as:

Maintenance costs
The demand for rental property
Demographics
Price-to-rent ratio (affordability when it comes to renting versus buying in the area)

Taxes on Rental Income in Alberta

When you collect rental income in Alberta, you must report that income on your tax return. Rental income is taxed at a marginal rate similar to interest income and can range from 25% to 48%.

Keep in mind that only your net rental income is taxable. This does not include deductions made for expenses such as property taxes, insurance premiums, and utilities.

What Can I Deduct From My Taxes?

You can also claim capital cost allowance (CCA) against your rental property and other assets used for earning rental income, like tenant improvements and new appliances.

CCA claims are depreciable, meaning that you must deduct the cost of your capital investment over a number of years.

If your rental expenses exceed your rental income, this is considered a rental loss and is usually deductible against your other sources of income.

However, there are some limits on claiming a rental loss, and CCA deductions cannot be used to create or increase a rental loss.

Not all expenses are deductible when it comes to your rental income, even if they relate to your rental property. These are known as “capital expenses” and refer to expenses that have a lasting benefit to your property.

For example, you cannot claim the cost of replacing your roof or adding a deck to your rental building.

However, even though these improvements can be claimed as deductibles, they can be added to the tax cost of your property, which allows you to claim the expense as a CCA over the course of several years.

Expenses that are considered deductible are known as “current expenses” and include expenses used to maintain, repair, or otherwise restore your property.

For example, building a fence is considered a capital expense and cannot be claimed – but sanding and repainting an old fence is a current expense, and the cost can be claimed.

Current expenses should be claimed in the year they were incurred instead of spread over time.

How Do I Know If It’s a Current or Capital Expense?

Figuring out whether your expenses are current or capital can be confusing. Is it a maintenance job or long-lasting improvements? Is re-wiring a home a current or capital expenditure?

This is why it is recommended that you speak with a qualified tax advisor before you carry out repairs, maintenance, or renovations to ensure that you make the proper claims on your taxes.

How do I file my taxes when I claim rental income?

If you are claiming rental income as a sole proprietor and not a business or partnership, you can include this income in your personal taxes by filling out Form T776.

You can also claim expenses on this form as well.

Be sure to keep all receipts from rent and expenses when preparing your personal tax return.

Benefits of Gaining Rental Income

There are a number of advantages to buying a property and renting it to tenants. Here are some of the key benefits:

Fewer Taxes

As we discussed above, you can claim certain expenses from your rental income, thus reducing the taxes you owe.

You can claim expenses such as mortgage interest, property taxes, insurance, maintenance, upgrades, property management fees, and utilities (if they are included in the rent).

Passive Income

Owning a rental property pays out on a monthly basis. This recurring income requires relatively little effort to earn and is a great way to make money on the side or create additional financial security.

The rental income you collect will offset the mortgage cost of your building, putting more money in your pocket!

Of course, you do have to factor in cash flow and prepare for inevitabilities such as cleaning up when a tenant moves out and repairs.

Property Appreciation

In today’s housing market, it seems tempting to sell your house and cash in on the rocketing house prices. However, once you sell your home, you can no longer benefit from any future appreciation.

Instead, you could rent out your home to secure your property and wait for the right time to sell.

Plus, having tenants ensures that issues with your home are noticed immediately and can be fixed in a timely manner.

Risks of Gaining Rental Income

Of course, there are some disadvantages and risks to gaining rental income that needs to be taken into consideration:

Tenants

When you own rental property and rent to tenants, you become a landlord. Despite your due diligence when choosing renters, you could end up with a difficult tenant.

For example, you could end up with a tenant that pays their rent late, demands unnecessary repairs, leaves the water running, keeps the heat on while away, etc.

You could also end up with an unsavory tenant that destroys your property.

While the majority of tenants in Alberta are respectful, you could end up with one that costs you money and decreases the income you make from their rent.

Repairs and Maintenance

When you own a rental property, minor and major repairs will arise. You may be able to save money by doing the work yourself, but larger issues may require a professional contractor.

As a landlord, you should expect to face regular maintenance and repair issues. From broken toilets to rotting stairs, it is your responsibility to ensure that the property is safe and livable.

If the building you invested in requires a lot of work, you can expect to pocket less of the rental income.

Your Assets Become Concentrated

If you’re looking to purchase a rental property as an investment opportunity, it’s important to consider that doing so will concentrate your assets.

Rental properties are non-liquid and non-diversified assets and can be exposed to risks from significant declines in tenant demand and local property values.

Tips for Saving on Rental Income

When you own a rental property, you are running a business that can be affected by the rise and fall of revenue and expenses.

Here are some tips for saving rental income so you can put more money in your pocket while creating a safe and comfortable environment for your tenants.

Keep Up With Regular Maintenance

Regular maintenance is a preventative measure that will protect your investment and keep your tenants happy (happy tenants reduce tenant turnover and increased costs).

Plus, regular maintenance will help you avoid more costly issues in the future.

Reduce Tenant Turnover

Speaking of tenant turnover, having tenants continuously coming and going is going to cost you more out of pocket for cleaning and updating – and you may lose out on rent as you advertise and vet a new tenant.

The key to reducing tenant turnover is keeping your tenants happy. Create an open environment of communication so you can learn about issues and solve them in a timely manner.

Fixing issues is far cheaper than the cost of turnover.

Reduce Property Expenses

Even though rental income is considered a passive income, there are many property expenses that come with being a landlord.

From heating bills to electricity bills, snow removal, and garbage removal, there are many financial responsibilities. However, you can always find ways to reduce these expenses.

For instance, you can improve the energy efficiency of your property by using less expensive alternatives such as LED lights and modernizing the heating system.

Maximize Your Tax Deductions

Ensure that you are maximizing your tax deductions and offsetting your expenses against your tax bill!

This is perhaps the best way you can save on rental income – and all it takes is one call to a professional tax accountant.

Rental Income Frequently Asked Questions

Do you have more questions? We have more answers! Check out these frequently asked questions:

Do rental income tax laws vary from province to province?

As long as you are renting out your property as an individual (and not a trust or partnership), the tax rules apply across all provinces of Canada.

Can claiming rental income trigger an audit?

Typically, rental income is not a common audit trigger but constantly claiming losses from a rental property will catch the attention of the CRA.

If you find yourself facing recurring losses from your rental property, be sure to keep careful records to show the CRA that you are doing everything you can to turn a profit.

Do I have to claim rental income from family members?

Yes, if your family member is paying you rent, this income must be reported on your tax return.

However, if you rent property to a family member below fair market value, you may be able to claim an acceptable loss and avoid paying taxes on this income.

As a landlord, can I increase the rent at any time?

In Canada, you cannot increase the rent during any fixed-term rental agreement. If your tenant is not on a fixed-term agreement, you cannot raise the rent during their first year of tenancy.

Can I increase my rental income to any amount?

The ability to raise rent depends on the province you are in. In many provinces, the amount of the increase is controlled by the government.

However, in Alberta, there are currently no controls on rent increases, but it can only be increased if there has been no rent increase in the previous 12 months (or since the start of the tenancy).

Rental Income in Alberta – We Can Help!

Although this guide is a great introduction to rental income in Alberta, the only way to guarantee that you fully benefit from earning a rental income is to speak to a licensed tax professional.

Our team at Liu & Associates has the knowledge and expertise when it comes to Albertan and Canadian tax landscape.

We can help you sort out your rental income and expenses so you can maximize your tax return.

Let’s chat today!

When Do I Need to Report Rental Income?

Renting property seems like a lucrative entrepreneurial opportunity as more and more individuals are renting out portions of their home and even offering space through popular accommodation services such as Airbnb.

Acquiring rental income is a great way to offset the cost of a mortgage or justify an investment in a secondary property. However, if you are renting your property to a third party, you are required to report your rental income on your tax return. While it may be tempting to not disclose this income to the CRA (Canada Revenue Agency), not doing so can lead not only to penalties but also missed opportunities for some tax savings.

What is Rental Income?

When it comes to claiming rental income on your taxes, rental income is considered to be any earned income from a rental property you own. This includes houses, apartments, rooms, office space and other real or movable property.

Rental income from Airbnb, income suits and any short term rentals must be claimed as well.

The duration of the rental, whether it be for one night, a week or a month, does not exempt the income from having to be claimed on your income taxes.

Exceptions to Claiming Rental Income

There is one exception to having to claim rental income on your income taxes – if you are renting a space below fair market value.

Renting below fair market value means that you are charging a rent significantly lower than rents charged for other properties that are similar to your property in your area.

Typically, home owners will charge family members below fair market value rent for allowing them to stay in their home.

If this is the case, you do not need to claim the income. However, you cannot claim any rental expenses or rental loss on your taxes.

The government considers this situation to be a “cost-sharing arrangement”.

Claiming Rental Income at Tax Time

If you are in a situation where you rent a property, or a portion of your property, at or above fair market value, the CRA requires that you pay taxes on the income earned.

In order to claim rental income on your tax return, you must declare the net income on line 160 of form T1. From there, you can subtract any qualifying expenses as well as capital expenditure depreciation expenses. The difference is your reported rental income.

Here are some common rental expenses that can be deducted against your rental income:

Advertising
Insurance
Mortgage interest
Repairs and maintenance
Property management
Utilities

To ensure that you are claiming the appropriate expenses for your rental property, contact the expert accountants at Liu & Associates for more information.

What Happens If I Don’t Claim Rental Income?

When the CRA expects you to claim any sort of income on your tax return, not doing so can lead to unpleasant consequences:

Interest accrual. If you owe taxes on rental income, and fail to report it, the amount can be subject to interest.
Penalties and fines. The CRA is within their rights to implement penalties for filing your taxes late. This amount is backdated to the time when the rental income should have been reported. Interest is also charged on the penalty amount.

Withholding your rental income from the CRA not only leads to financial consequences, but it also means that you miss out on the valuable deductions listed above.

Avoid the Confusion of Claiming Your Rental Income

Get in touch with the professional accountants at Liu & Associates to find out more information about how to properly claim your rental income as well as all of the tax benefits you can reap by renting out your property.

Why Do Home Builders Need An Accountant?

From large corporations to small boutique brands, one universal factor for home builders is that their finances can be quite complex. Most employ accountants or accounting firms but some may not understand how crucial these are in the construction industry. If you are curious why home builders need accountancy services, read on for Liu & Associates guide to this complicated issue.

Real Estate & Construction Accounting

Selling real property and constructing or renovating a property are viewed as distinct industries when it comes to finance. Though they share many fundamentals with general accounting, each makes use of different types of reports and strategies.

Contractors & Temporary Employees

The widespread use of contractors and temporary employees in construction makes its accountancy contrast with other fields. When building or renovating a property, a variety of skilled labourers will likely add to the final project– though very few, if any, will be on-site for the entirety. Construction accounting must accommodate and keep track of each worker and their contribution.

Mobile Industry

Construction involves vehicles, equipment, materials, temporary staff and many other dynamic variables. This can be difficult to manage financially without a reliable construction-focused accountant or accounting firm. With this many moving parts, traditional bookkeeping tends to fall short of the comprehensive understanding provided by construction accounting.

Percentage of Completion

As stated above, construction projects require input and effort from many different employees or contractors. The value each contributes must be determined against the final estimate– also known as “percentage of completion.” A good construction accountant can avoid expensive missteps and costly errors when determining this essential element.

GST & Home Construction

Most Canadians know that Goods and Services Tax (GST) is applied to all transactions and construction is no exception! There are intricate rules that determine whether or not you are responsible for the GST. Building, renovating, buying, selling– the definitions and GST responsibility vary between each of these situations. Construction accountants can help decode these complexities and avoid harsh fines or penalties.

As you can see, there are many areas where an accountant specialized in construction can help a home builder navigate the financial waters. Ignoring or forgetting these factors can be extremely expensive, so contact or visit Liu & Associates today! Our firm has years of professional expertise that can aid you, no matter your goals or industry.

Tax Implications of Rental Properties

Owning a separate rental property or renting out a space in your home can be a great way to make some additional income; however, it’s important you understand the tax implications that surround this type of endeavour. Read on for Liu & Associate’s guide to rental properties, taxes and more!

Claiming Rental Income

Regardless of the type of property you are renting (a room, your basement, a separate property), you must report all rental income to the CRA on a yearly basis. You’ll need to fill out a T776 – Statement of Real Estate Rentals form, which will allow you to claim the rent received from any tenants, as well as give you a space to claim expenses.

Claiming Expenses

If you’re renting out your principal residence (aka, the place you live in), you can claim a certain percentage of the household expenses. The amount you can claim is based off the size of the rental suite. If your basement suite takes up 25% of your home, you can claim 25% of your household expenses. Claimable expenses are things like heat, water, power, home insurance, etc.

Claiming Capital Cost Allowance (CCA)

This is where things can get a bit tricky, because there are a couple routes you can take. When performing long-term renovations on a rental property, such as installing a new roof, you can claim something called capital cost allowance (CCA). Claiming CCA gives you a tax break in the short term, but means that you will have to pay capital gains when you decide to sell your home.

If you decide not to claim CCA, you won’t receive any depreciation on your renovation, but you also do not have to pay capital gains when you sell your house. Whether or not you decide to claim any CCA will depend on your own unique situation. It’s best to chat with an accountant to see what’s best for you!

Questions?

If you have a rental property and have questions about your taxes, give the team at Liu & Associates a call! Our expert accountants will ensure you’re getting the maximum return, while making informed recommendations that will benefit you in the long run.

What Is The Best Way To Leave a Property In Your Will

Vacations at the family cottage is a cherished tradition, and so it would make sense that you would want to pass it on for generations to come. However, passing a vacation property on to your children can have tax consequences for you & your heirs which could make the inheriting the family cottage a burden, not a gift. Read on to learn some tax strategies for passing on your vacation property.

Sell Now or Inherit Later?

It’s a persistent rumour that selling your cottage to your children instead of waiting for them to inherit it can mitigate their tax burden. Or, perhaps that selling an even a 50% stake in the property to your children can lessen the tax burden when it comes time to inherit the rest.

This isn’t necessarily true. Whether you sell your cottage to your children now or they inherit it later, they will still incur the same tax burden, the only difference is the timing. The taxes are based on the deemed capital gain – calculated by subtracting the original sale price from the current Fair Market Value plus any renovations made to the property. Whether you sell now or inherit later, paying taxes on transferring ownership family cottage will be inevitable.

Cover Your Bases

So, is there any way to mitigate the tax burden?

Life Insurance: It may make sense to some to purchase life insurance to cover the taxes, however there are several downsides. It may be difficult to guess what the taxes will be early enough to buy a sufficient policy, or waiting until later in life when you have a better idea may risk your ability to purchase the policy to begin with. Finally, the cost of the premiums for the insurance policy may outweigh the benefits and could have been more productive invested elsewhere.

Gift or Sale: It’s possible to gift or sell the property to your heirs at a more opportune time, before it has increased in value significantly can reduce the tax burden on your children. However, should the property increase in value after the sale, the tax burden will be passed on the the next generation.

Other options include transferring the property to a trust or corporation. Interested in finding out more? Contact the Tax Planning professionals at Liu & Associates to discuss your options.

Income Tax Guide For Landlords

If you’re a landlord, then you know that tax season typically looks a little different for you than it does for those without income properties. While filing your taxes as a landlord may at first seem overwhelming, rest assured that there are straightforward ways to reduce confusion when completing your paperwork.

The most important method of managing your taxes is to learn more about landlords’ tax responsibilities and the overall filing process. Through this knowledge, you will feel more empowered to ask questions, get support and confidently complete your tax forms.

Understanding your income

Before you file your taxes for rent payments you’ve received, it is essential that you know the ins and outs of what qualifies as rental or business income. Canadian law differentiates between housing that provides simple living quarters and businesses that provide a wide range of services.

If your responsibilities as a landlord start and end with providing tenants with a safe and lawful place to reside, then resident payments will most likely be considered as rental income. Conversely, if you are providing tenants with other offerings such as cleaning, landscaping, security or administrative support, then your income will typically be considered as stemming from a business. Knowing the proper classification of your income type is critical, because it sets the foundation for the rest of the tax paperwork you must complete.

Keeping track of your expenses

There are countless types of expenses that landlords must face each year in order to maintain their property and provide a safe and comfortable dwelling for tenants. Because these expenses can add up so quickly—and just as easily be forgotten—it is in your best interest to keep a detailed record of all expenses pertaining to your property.

Expenses can include costs of onsite repairs, gas used to go to and from your building for maintenance or business-related purposes and even legal fees used to draft contracts and lease agreements. Keeping tabs on all property-related costs will increase the ease and speed in which you file your taxes each year.

Utilizing appropriate deductions

There are many tax deductions available for landlords who receive income from a rental property. While some deductions are common and easily recognizable, such as building repairs or home office expenses, others are not so straightforward. If you are a landlord, you may also be eligible for deductions related to interest on mortgage payments and loans, business-related travel, contractor payments and insurance payments made for your rental property. Additionally, you may be eligible for a deduction if your property recently decreased in value, or if you suffered property damage from a fire or break-in. Becoming familiar with the range of deductions available to you will help you secure an appropriate tax refund.

Through these simple steps, you will be on your way to filing accurate taxes that properly reflect your income. For additional guidance on how to file taxes as a landlord, consult with Liu & Associates today.

Tax Deductions For Edmonton Homeowners

While owning a home is one of the best investments you can make, it is still an expensive endeavor. The Canada Revenue Agency has tried to make this easier on Canadians by offering several tax deductions specifically for homeowners. Whether you’re a first-time homeowner or you’ve owned your home for years, make sure you don’t miss out on these great tax deduction opportunities:

First-time home buyer’s tax credit

This tax credit of up to $750 is only available for first-time homebuyers and is based on a percentage of $5,000.

Renovations for mobility purposes

Persons with mobility impairments can claim expenses for renovations that make their homes more accessible.

New home rebate

If your new home cost less than $450,000 (or you did extensive home renovations) you may be able to claim the GST. There is a similar rebate for anyone who bought, built, or renovated a rental property.

Home Buyer’s Plan

This rebate allows you to withdraw up to $25,000 from your RRSP to help purchase a new home. You can then take up to 15 years to pay it back, penalty-free.

Rental income

If you rent out a property that you own, you can claim certain expenses such as insurance, advertising, or interest on money used to purchase or renovate the property.

Working from home

If you work from home you may be able to claim expenses such as home insurance, electricity, or heating.

There are also several tax deductions specific to the province of residence. Home-ownership is a sound investment, but don’t overlook something that can earn you even more value. Contact or visit Liu & Associates today and consult with our experts to find out if there are even more deductions that you might be eligible for.