HELP!! How do I reduce personal income tax on rental income?

Mar 11th, 2022 8:31 pm

#1

keyfox [OP]: Newbie; Feb 20, 2021; 22 posts; 7 upvotes

Mar 11th, 2022 8:31 pm

HELP!! How do I reduce personal income tax on rental income?

After deducting expenses(Property tax, insurance and maintenance) I still have 14k rental income for which I am taxed 43% under my personal income tax.

Please suggest any legal way to reduce the tax. I am using wealthsimple to file my income tax.

I am a first time rental prop owner and want to evaluate whether it's worth keeping the investment rental property or just sell it off in hot market.

Any suggestion will be helpful. Thanks

Mar 11th, 2022 9:36 pm

#2

BigDurian: Member; Mar 1, 2016; 374 posts; 313 upvotes

Mar 11th, 2022 9:36 pm

Property management fees?

Mar 11th, 2022 9:47 pm

#3

Bailey8: Jr. Member; Dec 16, 2015; 111 posts; 61 upvotes; Ajax, ON

Mar 11th, 2022 9:47 pm

You can write off the interest portion of your mortgage against the rental income.

+1

Mar 11th, 2022 10:13 pm

#4

sunnyb7: Newbie; Nov 24, 2020; 61 posts; 31 upvotes

Mar 11th, 2022 10:13 pm

If you sell, the profit earned will also be taxed. Isn't it?

+1

Mar 11th, 2022 11:24 pm

#5

YYZtoYOW: Jr. Member; Sep 27, 2020; 125 posts; 83 upvotes

Mar 11th, 2022 11:24 pm

Assuming you already deducted interest you have a substantial profit and of course will have to pay taxes. If you sell and invest elsewhere that investment will also be taxable. I would happily pay $1million a year in taxes as it means I earned 2. Now dividends are treated a little better as is capital gains but neither are guaranteed.

+2

Mar 11th, 2022 11:39 pm

#6

hybridfx2: Member; Jan 19, 2009; 335 posts; 257 upvotes

Mar 11th, 2022 11:39 pm

If cash flow is an issue look into claiming CCA

+1

Mar 11th, 2022 11:50 pm

#7

Crispers: Member; Sep 24, 2012; 214 posts; 129 upvotes; Ontario

Mar 11th, 2022 11:50 pm

I'm a first time landlord as well and I plan to claim CCA to reduce my taxes to zero

Mar 12th, 2022 2:58 am

#8

Samuro: Jr. Member; Nov 25, 2016; 193 posts; 165 upvotes

Mar 12th, 2022 2:58 am

Property tax can be claimed as rental expense?

Mar 12th, 2022 4:43 am

#9

rfd911: Member; Oct 6, 2017; 392 posts; 442 upvotes

Mar 12th, 2022 4:43 am

Condo fee if you have. Interest on mortgage if you have. You can claim CCA. I think I will be claiming about $10K CCA to bring my net rental income to 0.

Mar 12th, 2022 5:49 am

#10

aiz_324: Member; Dec 8, 2008; 494 posts; 266 upvotes

Mar 12th, 2022 5:49 am

I think it only makes sense to claim CCA if you think you'll make less income when you eventually sell it, because CCA gets recaptured... So just keep that in mind! You might save on taxes now, but when you sell you'll be hit with quite a bit in capital gains and recaptured CCA

+7

Mar 12th, 2022 7:14 am

#11

teoconca: Deal Guru; Oct 16, 2008; 10287 posts; 4552 upvotes; Vaughan

Mar 12th, 2022 7:14 am

Crispers wrote: ↑ I'm a first time landlord as well and I plan to claim CCA to reduce my taxes to zero

What is CCA? Thanks.

...

Mar 12th, 2022 7:27 am

#12

pardnme: Deal Addict; Feb 22, 2007; 2040 posts; 276 upvotes; Mississauga

Mar 12th, 2022 7:27 am

dont' claim CCA on rental property.

in today's market, you should always be taxed on your rental income because rent's are so high. In any normal year, you would have:

Total rent minus the following:

Property Tax
The interest you have paid on your mortgage
Maint/Condo Fees if applicable
Utilities if applicable
Possibly bank fees if applicable
Realtor fees for listing the property

+10

Mar 12th, 2022 8:21 am

#13

jkwan18: Sr. Member; Feb 23, 2005; 958 posts; 76 upvotes

Mar 12th, 2022 8:21 am

List of possible expenses:

https://rethinkcpa.ca/tax-and-accountin ... investors/

Should you claim CCA?

https://rethinkcpa.ca/should-you-claim- ... -property/

+3

Mar 12th, 2022 8:30 am

#14

Worriedone: Deal Addict; Dec 3, 2013; 1226 posts; 2002 upvotes; Somewhere over the r…

Mar 12th, 2022 8:30 am

You ran into what a lot of people don't realize when they first start out. A lot of cash flow gets wiped out after taxes. It's quite possible to owe more in taxes than what you had in positive cash flow. Other than what's listed here there's not much more you can do unless you want to start playing games which isn't recommended.

The only other thing you can do in the future if you buy more properties and if you have a partner is to put it in the lower income earners name only and pay less taxes.

+1

Mar 12th, 2022 8:35 am

#15

Stupido: Sr. Member; Aug 9, 2020; 926 posts; 503 upvotes

Mar 12th, 2022 8:35 am

claim expenses

Mar 12th, 2022 8:37 am

#16

gc99: Sr. Member; Jan 14, 2008; 784 posts; 530 upvotes; Toronto

Mar 12th, 2022 8:37 am

aiz_324 wrote: ↑ I think it only makes sense to claim CCA if you think you'll make less income when you eventually sell it, because CCA gets recaptured... So just keep that in mind! You might save on taxes now, but when you sell you'll be hit with quite a bit in capital gains and recaptured CCA

For some people, Theres a couple of good points to claim CCA now

-defer the tax, keep more money in your hands now to reinvent (present vs future--cash is always better to have in the present)

-using cca now to lower your tax bracket is a good idea if you need to keep income Below certain thresholds for government benefits like the canada child tax benefit and regional daycare subsidies (if your income goes too high you lose this benefit and you will not be able to claim it later when the kids grow up), whereas CCA is claimable now. This depends on you keeping the property long term.

Often the hassle of tracking CCA may outweigh the benefits.

Mar 12th, 2022 10:37 am

#17

Crispers: Member; Sep 24, 2012; 214 posts; 129 upvotes; Ontario

Mar 12th, 2022 10:37 am

you should claim CCA if the future value of the benefits you receive now (ie. growth of the tax savings), outweighs the CCA recapture taxes when you decide to sell.

you can assume you will be taxed at the highest bracket when you sell, so if you're near or at the highest tax bracket today, i think it will likely make sense to claim CCA (and invest the cash flow).

Mar 13th, 2022 1:09 am

#18

mrct1944: Sr. Member; May 28, 2012; 590 posts; 569 upvotes; ONT

Mar 13th, 2022 1:09 am

keyfox wrote: ↑ Please suggest any legal way to reduce the tax. Any suggestion will be helpful. Thanks

If you are married split expenses/income 50/50 with your wife.........

That could lower your overall taxes.

Mar 13th, 2022 9:11 am

#19

Worriedone: Deal Addict; Dec 3, 2013; 1226 posts; 2002 upvotes; Somewhere over the r…

Mar 13th, 2022 9:11 am

mrct1944 wrote: ↑ If you are married split expenses/income 50/50 with your wife.........

That could lower your overall taxes.

That could go either way. It really depends on the current income and future incomes of both people involved

Mar 13th, 2022 11:45 am

#20

mudd_stuffin: Deal Addict; Jun 11, 2005; 2782 posts; 421 upvotes

Mar 13th, 2022 11:45 am

mrct1944 wrote: ↑ If you are married split expenses/income 50/50 with your wife.........

That could lower your overall taxes.

There are income attribution rules which prohibit this kind of planning with investment assets.