Real Estate

Can you claim revenues and expenses on non-authorized rental suites?

  • Last Updated:
  • Aug 31st, 2020 10:32 am
[OP]
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Feb 19, 2014
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Langley

Can you claim revenues and expenses on non-authorized rental suites?

Hi RFD,

I was just wondering if you are allowed to claim revenues and expenses on non-authorized rental suites? For example, if I have a basement suite in my house, I rent it out for $800 a month. According to my city, it is not authorized. But, I still want to make sure I claim revenue and also be able to claim expenses related to the suite.

As far as I know, the CRA doesn't care if my suite is authorized or not, that's not their problem, they just want to make sure i'm paying my taxes. Am I right in this thinking?
Will the CRA ask me if my suite is authorized or not? or do they just care about getting their taxes?

The reason I ask is because a co-worker told me that because my suite isn't authorized I won't be allowed to claim any expenses related to it, but I still have to claim revenues.

Is this the case?
17 replies
Newbie
Jun 16, 2017
95 posts
27 upvotes
No, you are correct. The CRA has no interest in whether your unit is legal or not. Rental income is rental income.
Deal Addict
Nov 23, 2003
1884 posts
417 upvotes
You have to declare the income whether legal or illegal. It’s the law.
Member
Jun 6, 2014
208 posts
71 upvotes
Toronto, ON
You should be claiming the revenue. You co-worker's close. You can't claim more expenses then revenue you are claiming. In your case, you can't claim more then $800 in expenses.
[OP]
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Feb 19, 2014
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Langley
icedtea365 wrote: You should be claiming the revenue. You co-worker's close. You can't claim more expenses then revenue you are claiming. In your case, you can't claim more then $800 in expenses.
Do you know why you can't claim more expenses than your revenues? As far as I knew, you treat rental income as a business and all revenues and expenses should be reported.

I have a big plumbing project that i'm due for and the estimated quote is about $3,000, the plumbing is solely in the basement suite. There's Poly B piping that runs to the basement heaters, the main floor heaters use copper so they don't need to be changed out.
Last edited by jellytime on Aug 14th, 2020 8:00 pm, edited 1 time in total.
Newbie
Jun 16, 2017
95 posts
27 upvotes
icedtea365 wrote: You should be claiming the revenue. You co-worker's close. You can't claim more expenses then revenue you are claiming. In your case, you can't claim more then $800 in expenses.
This is incorrect. You can claim a rental loss, as long as the loss is not created by claiming CCA. You can claim CCA to reduce rental income to zero, but not to create a loss.
Sr. Member
Feb 19, 2019
847 posts
923 upvotes
Stouffville ON
icedtea365 wrote: You should be claiming the revenue. You co-worker's close. You can't claim more expenses then revenue you are claiming. In your case, you can't claim more then $800 in expenses.
jellytime wrote: Do you know why you can't claim more expenses than your revenues? As far as I knew, you treat rental income as a business and all revenues and expenses should be reported.
The previous poster gave you info that is not correct.
CraigB806782 wrote: This is incorrect. You can claim a rental loss, as long as the loss is not created by claiming CCA. You can claim CCA to reduce rental income to zero, but not to create a loss.
This is the correct answer.
Full Time and Full Service Realtor
Member
Jun 6, 2014
208 posts
71 upvotes
Toronto, ON
jellytime wrote: Do you know why you can't claim more expenses than your revenues? As far as I knew, you treat rental income as a business and all revenues and expenses should be reported.

I have a big plumbing project that i'm due for and the estimated quote is about $3,000, the plumbing is solely in the basement suite. There's Poly B piping that runs to the basement heaters, the main floor heaters use copper so they don't need to be changed out.
A business has a certain expectation for profit. If you don't expect to make a profit, you are not a true business.
If you plan on spending $3K for plumbing that is solely for the rental unit, it can be an eligible expense, but there is an expectation that you'll make the money back from the rent you are collecting to cover the cost of the plumbing. No one is in business to lose money.
Newbie
Jun 16, 2017
95 posts
27 upvotes
"A business has a certain expectation for profit. If you don't expect to make a profit, you are not a true business.
If you plan on spending $3K for plumbing that is solely for the rental unit, it can be an eligible expense, but there is an expectation that you'll make the money back from the rent you are collecting to cover the cost of the plumbing. No one is in business to lose money."
This is correct. If you have a rental property, having a loss in a given year is no problem. However showing a loss year after year will eventually result in CRA scrutiny and if they conclude you have no reasonable expectation of profit, they will deny the loss. Same principle applies to a business.
[OP]
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Feb 19, 2014
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Langley
icedtea365 wrote: A business has a certain expectation for profit. If you don't expect to make a profit, you are not a true business.
If you plan on spending $3K for plumbing that is solely for the rental unit, it can be an eligible expense, but there is an expectation that you'll make the money back from the rent you are collecting to cover the cost of the plumbing. No one is in business to lose money.
CraigB806782 wrote: "A business has a certain expectation for profit. If you don't expect to make a profit, you are not a true business.
If you plan on spending $3K for plumbing that is solely for the rental unit, it can be an eligible expense, but there is an expectation that you'll make the money back from the rent you are collecting to cover the cost of the plumbing. No one is in business to lose money."
This is correct. If you have a rental property, having a loss in a given year is no problem. However showing a loss year after year will eventually result in CRA scrutiny and if they conclude you have no reasonable expectation of profit, they will deny the loss. Same principle applies to a business.

Yes. I agree. You can't show a business loss year over year over year, unless you're in a growth phase like amazon was.

For the $3k worth of plumbing it's an investment into my business. besides, i'll still be showing a profit as $800 x 12 = $9,600 for the year, less expenses would be at least a $6k profit

Thanks for the input though!
Jr. Member
Jan 19, 2009
143 posts
17 upvotes
An ancillary question to non-authorized rental suites: Will a bank include the non-authorized rental income in their debt service calculations for a mortgage refinancing (assuming leases are signed and in hand)?
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Aug 20, 2020
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Scarborough
hybridfx2 wrote: An ancillary question to non-authorized rental suites: Will a bank include the non-authorized rental income in their debt service calculations for a mortgage refinancing (assuming leases are signed and in hand)?
Basement suites can be legal conforming, legal non-conforming or non-legal. Treatment of rent on all 3 kinds differs by the lender and also the % of rental income considered. Among banks, I know one which considers 50% rental income from non-legal suites when the subject property is owner-occupied and conventional (over 20% downpayment in case of purchase OR Refinance).
Neil Joseph
Mortgage Agent, Broker Lic #10530
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Sep 4, 2005
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Toronto
icedtea365 wrote: A business has a certain expectation for profit. If you don't expect to make a profit, you are not a true business.
If you plan on spending $3K for plumbing that is solely for the rental unit, it can be an eligible expense, but there is an expectation that you'll make the money back from the rent you are collecting to cover the cost of the plumbing. No one is in business to lose money.
This is correct, but technically when the OP rents say his basement he should be doing a home assessment. If the property is worth $1mill, and the basement is 30% of the house . In the year OP rents it out, lets say 2020, the benchmark is set for his basement as 300k. If he rents it out for 5 years until 2025 and then decides he wants to take back use or it or sell his property (both are considered the same), he needs to do another assessment. This time if his house is worth $1.2m, his 30% basement would now be worth $400k. So CRA would consider that a $100k capital gain.

He will do annual returns for the rental income and expenses each year. If he shows a loss for 5 years in a row that is fine, because the CRA will make it back with the capital gains. So for example, if OP took these losses and fixed up the property, it will likely sell for more than $1.2m, which will further increase the capital gains.

Doing CCA ends you up in the same place, you're saying the property is depreciating so you can write it off each year on your taxes, but if you sell the property and it went up or stayed the same value, all you've done is increase the capital gain amount.

Legal basement or not, CRA doesn't care.
Sr. Member
May 23, 2006
761 posts
70 upvotes
Vancouver
I heard most rental suites in a detached house are illegal suites.

CRA doesn't care. It's the City that cares....but i think they seldomly enforce the by laws as it would just make rent less affordable to the low income group....making things even worse.
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Nov 2, 2013
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Edmonton, AB
When you are under one jurisdiction, the law is concerned whether you are following the law within that jurisdiction.

So when it comes to tax, CRA is concerned whether you are following tax law, not building laws. They couldn't care less whether your suite is legal or not.

An example is how CRA allows you to technically deduct expenses incurred to earn a taxable income, whether that income source is legal or not. But it becomes illegal to not report the income.
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