Real Estate

How much repair expenses can i claim on rental property?

  • Last Updated:
  • Nov 29th, 2020 5:52 pm
[OP]
Jr. Member
Jan 22, 2015
171 posts
43 upvotes
Toronto

How much repair expenses can i claim on rental property?

So i purchased 1 rental property last year which was in tertible shape and spent around $50k in renovations including paint, kitchens, floors, appliances, lights, doors, drywalls, washrooms etc etc.


My question is can i 50k in expenses or what portion of $50k is tax deductible?
19 replies
Deal Addict
Nov 22, 2004
1564 posts
648 upvotes
A proper tax accountant can confirm this but as I understand it, in "tax accounting" context, since your renovations were more about extending the useful life of the asset, you would be capitalizing the cost of renovations then depreciating them annually. In this case, you'd also need to treat your rental building as a capital asset and depreciate it, which many people opt not to do because it doesn't provide much tax savings.

If the repairs are more of maintenance in nature then they can be expensed 100%. There is no hard rule of thumb as to what % of costs is created as maintenance as long as you can justify to CRA that the expense qualified as a maintenance expense not a capital expense.

Some clarification here.
Last edited by Clueless Fox on Jul 12th, 2020 9:35 pm, edited 1 time in total.
Realtor @ Royal LePage Ignite Realty
[OP]
Jr. Member
Jan 22, 2015
171 posts
43 upvotes
Toronto
Correct and this is what i am struggling with because the property was in a bad shape and all the money was spent to make it liveable and than rented out.
Deal Addict
Nov 22, 2004
1564 posts
648 upvotes
hammadarif wrote: Correct and this is what i am struggling with because the property was in a bad shape and all the money was spent to make it liveable and than rented out.
I would go with capitalizing the costs then depreciating accordingly. I believe renovations fall under Class 1. You'll have to keep track of depreciation till the sale of property then determine recapture or terminal loss. Bit of a tedious bookkeeping exercise but better than a CRA audit.
Realtor @ Royal LePage Ignite Realty
[OP]
Jr. Member
Jan 22, 2015
171 posts
43 upvotes
Toronto
Can anyone please refer or direct me to any info on how 'Captilalizing cost' & 'depriciating' etc information that i can read and prepare my books accordingly? Thanks
Deal Addict
Feb 7, 2018
1123 posts
1913 upvotes
I also have a similar Q with respect to my rental. I bought new appliances and paint for the new tenant. I don’t want to claim CCA on the property and get F’d by CRA when I sell. How would I go about claiming these as expenses without also claiming CCA on the property as indicated above?
Deal Addict
Nov 22, 2004
1564 posts
648 upvotes
wiab89 wrote: I also have a similar Q with respect to my rental. I bought new appliances and paint for the new tenant. I don’t want to claim CCA on the property and get F’d by CRA when I sell. How would I go about claiming these as expenses without also claiming CCA on the property as indicated above?
I believe this is more straightforward. I spoke to a couple of accountants earlier who said that you can expense the painting as part of general maintenance/wear and tear. The appliances can be capitalized without needing to do CCA on the property itself. You'd do CCA/UCC method of depreciation for appliances (Class 8 - 20%). At the time of sale, because the appliances are sold as part of the property you can claim terminal loss on them because there's no clear way to separate the value of the appliances from the property itself.

I called CRA about it as well but they didn't give any clear-cut answer as to what should be done, just that 'it depends on the scenario and if you're reasonably able to estimate the cost'. EDIT: See the post below for some more clarity on this.

I'm not sure if the same argument can be applied for renovation of the property itself where you can claim CCA/UCC on the renovation part only but not do it for the property.

This is a good question and I'd like to know this as well. Maybe one of the practicing resident tax accountants can shine a light on both. @PolarisCPA ?
Last edited by Clueless Fox on Jul 11th, 2020 11:32 am, edited 1 time in total.
Realtor @ Royal LePage Ignite Realty
Sr. Member
Jan 15, 2015
631 posts
383 upvotes
hammadarif wrote: So i purchased 1 rental property last year which was in tertible shape and spent around $50k in renovations including paint, kitchens, floors, appliances, lights, doors, drywalls, washrooms etc etc.

My question is can i 50k in expenses or what portion of $50k is tax deductible?
wiab89 wrote: I also have a similar Q with respect to my rental. I bought new appliances and paint for the new tenant. I don’t want to claim CCA on the property and get F’d by CRA when I sell. How would I go about claiming these as expenses without also claiming CCA on the property as indicated above?
Clueless Fox wrote: I believe this is more straightforward. I spoke to a couple of accountants earlier who said that you can expense the painting as part of general maintenance/wear and tear. The appliances can be capitalized without needing to do CCA on the property itself. You'd do CCA/UCC method of depreciation for appliances (Class 8 - 20%). At the time of sale, because the appliances are sold as part of the property you can claim terminal loss on them because there's no clear way to separate the value of the appliances from the property itself.

I called CRA about it as well but they didn't give any clear-cut answer as to what should be done, just that 'it depends on the scenario and if you're reasonably able to estimate the cost'.

I'm not sure if the same argument can be applied for renovation of the property itself where you can claim CCA/UCC on the renovation part only but not do it for the property.

This is a good question and I'd like to know this as well. Maybe one of the practicing resident tax accountants can shine a light on both. @PolarisCPA ?
I have always expensed painting under "Maintenance" for each year.

In the CRA T4036 Income Guide, there is a clear definition of what constitutes a current expense, which is 100% deductible in the tax year that it is incurred. Thus a replacement item like a fridge or washer may be claimed as a current expense provided it was similar in quality and features. The same applies to a roof or retaining wall; if you can prove that the replacement was of identical material (example: shingle roof replaced by shingle roof and not metal) and did not improve the looks in any significant manner (replacement of brick retaining wall with brick and without adding landscaping), you can claim as a current expense. But usually renovations bring a major improvement to the looks and functionality of your rental property, especially if those enhancements were meant to attract a higher paying tenant. In that case, cost of capital equipment would not qualify as current expenses.

The burden of proof is on you. Take photos of the "before" and "after" situation. With appliances, for example, you can download old instruction manuals that show features and these can be used to compare against the new item.

If the appliances are much improved over the old ones, (example: a $3000 Samsung smart fridge replacing a $600 Haier special) it is better to list them as capital items on the last page of the T776. @Clueless Fox: I agree that you can choose to declare a zero amount for CCA in annual tax returns, and recover any loss for capital appliances when you eventually sell the property.

See page 13 of the T4036 for definition of current and capital expense, page 22 for @wiab89 question on how to claim CCA on your T776.
T4036 Rental Income...
Deal Addict
Nov 22, 2004
1564 posts
648 upvotes
SAM3674 wrote: I have always expensed painting under "Maintenance" for each year.

In the CRA T4036 Income Guide, there is a clear definition of what constitutes a current expense, which is 100% deductible in the tax year that it is incurred. Thus a replacement item like a fridge or washer may be claimed as a current expense provided it was similar in quality and features. The same applies to a roof or retaining wall; if you can prove that the replacement was of identical material (example: shingle roof replaced by shingle roof and not metal) and did not improve the looks in any significant manner (replacement of brick retaining wall with brick and without adding landscaping), you can claim as a current expense. But usually renovations bring a major improvement to the looks and functionality of your rental property, especially if those enhancements were meant to attract a higher paying tenant. In that case, cost of capital equipment would not qualify as current expenses.

The burden of proof is on you. Take photos of the "before" and "after" situation. With appliances, for example, you can download old instruction manuals that show features and these can be used to compare against the new item.

If the appliances are much improved over the old ones, (example: a $3000 Samsung smart fridge replacing a $600 Haier special) it is better to list them as capital items on the last page of the T776. @Clueless Fox: I agree that you can choose to declare a zero amount for CCA in annual tax returns, and recover any loss for capital appliances when you eventually sell the property.

See page 13 of the T4036 for definition of current and capital expense, page 22 for @wiab89 question on how to claim CCA on your T776.
T4036 Rental Income...
Thanks for this, can you clarify if you need to claim CCA on the property itself in order to claim CCA for renovations? Or can you keep the CCA bookkeeping limited to the renovations specifically?
Realtor @ Royal LePage Ignite Realty
Sr. Member
Jan 15, 2015
631 posts
383 upvotes
Clueless Fox wrote: Thanks for this, can you clarify if you need to claim CCA on the property itself in order to claim CCA for renovations? Or can you keep the CCA bookkeeping limited to the renovations specifically?
I've never claimed my CCA each year, nor have I made any improvements to my building in all the years that I rented the property. The line for the UCC )Undepreciated Capital Cost at the beginning of Year for "Buildings" under Class 1) in the Area A table of my T776 remains the same each year. My next line on the same table is for Capital Equipment (appliances) under Class 8 and I can choose to make the CCA claim (or not). I used StudioTax software and you can override any line choosing any amount you wish to claim in column 12.

If your renovations involve things like adding an extension to the building or a sundeck they would likely be Class1 and thus added to the UCC for Buildings (50% of actual monies spent as this is capital improvement) to give you a higher CCA amount to claim. I suppose you could speak to an accountant to confirm whether you can claim just the portion for renos. Common sense tells me that Canada Revenue should allow a partial claim, since everything gets reconciled when you sell.
Sr. Member
Oct 22, 2016
893 posts
802 upvotes
Comox Valley
I did a few rental homes like this, during the downturn in the USA. I suggest you see a good (not all of them are the same), accountant, and be pro active on what will be CCA or not.

The house I did, were trashed, and my accountant claimed almost everything as maintenance. This even included painting. However it went to tax court, and the CRA lawyers would not budge on what they felt was CCA (including painting). We settled, and I did take a loss on some items.

The biggest problem I did come across was the accounting on these properties. If I had that under the right oversight, it would have saved me a multi-year tax battle.

You have a large loss here, and I suggest you have the mindset that that you will be audited on it. This way you will have everything in order, and be ready for it.

Congrats on the work you did on property, it is not easy.

Edit: Just in case anyone got the wrong impression on painting claim. I think that if your unit did not need extensive renovation, painting under maintenance would be fine, and not a redflag ((no pun intended). For me due to large amount off renovation, it was a CCA. Again if you have a large amount of deductions, keep the mindset that you will get audited.
Last edited by User452441 on Jul 12th, 2020 3:50 pm, edited 1 time in total.
Sr. Member
Oct 16, 2007
817 posts
43 upvotes
For class 8 appliances, after how many years or ucc final balance ,can u expense the UCC amount? Each year the cca becomes smaller and immaterial. Is there a threshold($100?), you can just expense the ucc?
Sr. Member
Jan 15, 2015
631 posts
383 upvotes
boumbo wrote: For class 8 appliances, after how many years or ucc final balance ,can u expense the UCC amount? Each year the cca becomes smaller and immaterial. Is there a threshold($100?), you can just expense the ucc?
Class 8 depreciation is 20% so it is over 5 years.
Deal Addict
Nov 22, 2004
1564 posts
648 upvotes
SAM3674 wrote: Class 8 depreciation is 20% so it is over 5 years.
As I understand it, for the most part, declining balance depreciation method is used so it's not 5 years as it would be for straight-line. Again, CRA's language is not crystal clear that you can't use other methods, so I think you can pick a method and be consistent with it. If you are using declining balance and get it down to $100 or so, I'd just claim terminal loss or something. I don't expect CRA to come after you for such immaterial amount.

This is what I read:
For the most part, you should use the declining balance method to calculate your CCA, as it is the most common one. This means that you apply the CCA rate to the capital cost of the depreciable property. Over the life of the property, the rate is applied against the remaining balance. The remaining balance declines each year that you claim CCA.
CRA link on Capital Cost Allowance on Rental Property
Realtor @ Royal LePage Ignite Realty
Sr. Member
May 28, 2012
568 posts
543 upvotes
ONT
A rental property needs a new (replacement) furnace for safety reasons. I ordered the furnace ($6,000-) and paid 50% deposit in November 2020.

The installation and $3,000- balance paid will be in January 2021. How do I allocate this cost on Form T776 for 2020 and then 2021?

Thanks!
Newbie
Oct 1, 2016
39 posts
32 upvotes
Sine the furnace will be installed in 2021, expense the total cost in 2021.
Sr. Member
Oct 14, 2010
573 posts
600 upvotes
Toronto
I have a similarity question - I painted our condo between occupancies, and had to buy a step ladder ($50) as the ceiling height is a bit too high to reach while taping and cutting, it is only $50, but used only once in the condo. Can this be expensed under painting supplies?
Deal Addict
Mar 3, 2018
3017 posts
3383 upvotes
GTA
mrct1944 wrote: A rental property needs a new (replacement) furnace for safety reasons. I ordered the furnace ($6,000-) and paid 50% deposit in November 2020.

The installation and $3,000- balance paid will be in January 2021. How do I allocate this cost on Form T776 for 2020 and then 2021?

Thanks!
A new furnace is a capital expense not a deductible current expense. In other words you add it to the cost of the building and it may reduce your future capital gain. Alternatively you can claim building depreciation (CCA) but it is not recommended unless the property is actually depreciating in value.

rental-property-furnace-replacement-cur ... e-2235319/
Deal Addict
May 23, 2006
1521 posts
552 upvotes
Vancouver
$50k for renovation sounds a lot especially for rental property. My understanding is that busines ppl generally spends the bare minimum to maintain/upgrade rental property.

Just make sure the amount is reasonable and supportable upon review by CRA.

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