Investment/Rental properties and Taxes

[240sxer]

Guys,

For what I understand, income from a rental/investment property is taxed as such.. You take 50% of the investment income and tax it at your marginal rate. So in my case, according to the Canadian Income Tax Calculator, my marginal rate is 39.41%, this means if I made $10,000 as income from an investment property, tax on that would be ($10k-50%)-39.41%=$1970.50.

1) Would that be accurate?

The follow up questions are:

2) What defines "income" from an investment/rental property? Is income only when you buy a second property and sell it at a gain and that gain is taxable or is income the rent you recieve from tenants that would be taxed at that rate?

3) Do I receive T5 forms or any type of tax form to claim or am I responsible for calculating and claiming tis income? I mean, if its rent and I'm getting cheques, is it all up to me to track or will the CRA know and tell me eaxtly what I need to claim?

New to this and would really appreciate the help!

Thanks,

[stanimal]

Guys,

For what I understand, income from a rental/investment property is taxed as such.. You take 50% of the investment income and tax it at your marginal rate. So in my case, according to the Canadian Income Tax Calculator, my marginal rate is 39.41%, this means if I made $10,000 as income from an investment property, tax on that would be ($10k-50%)-39.41%=$1970.50.

1) Would that be accurate?

No, rental income is not considered investment income. You would need to add your rental income, deduct related expenses, and add the net rental income to your regular income, and will be taxed at your marginal rate. You would not multiply your rental income by 50%.

2) What defines "income" from an investment/rental property? Is income only when you buy a second property and sell it at a gain and that gain is taxable or is income the rent you recieve from tenants that would be taxed at that rate?

Income would be rent money. If you sell a rental property for a gain, then you will be responsible for paying capital gains tax (which is where the 50% calculation you mention is applied).

3) Do I receive T5 forms or any type of tax form to claim or am I responsible for calculating and claiming tis income? I mean, if its rent and I'm getting cheques, is it all up to me to track or will the CRA know and tell me eaxtly what I need to claim?

No. You are responsible for keeping track of all your income and expenses and will need to show proof to CRA if audited.

[240sxer]

Thanks, are you sure about that? Is it mentioned in CRA somewhre?

I understand, however, how is the CRA tracking rental income then exactly for them to audit it? If I do purchase an investment property and rent it out, if there are no forms or tax sheets or anything for that matter, what prevents people (regardless of honest or not) to not claim it or ensure they're not making mistakes when claiming it?

[James_TheVirus]

Thanks, are you sure about that? Is it mentioned in CRA somewhre?

I understand, however, how is the CRA tracking rental income then exactly for them to audit it? If I do purchase an investment property and rent it out, if there are no forms or tax sheets or anything for that matter, what prevents people (regardless of honest or not) to not claim it or ensure they're not making mistakes when claiming it?

This should have a lot of the info that you are looking for: http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-11e.pdf

The CRA is very good at looking at a landlord providing details that they had X rental income, as tenants get a tax deduction for rent paid during the year. This helps to keep people honest.

[240sxer]

Thanks for that PDF, very detailed. But in summary, rental income is claimed yearly for the year you collect it (minus all the deductables) and capital gains are only when you sell your investment property and you claim it for the year you sold it.. That's taxed at 50% of your marginal rate..