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My question is: Canadian-specific
QUESTION: We bought a cottage in northern Ontario and we plan to rent it out during a portion of the summer.
What are we able to write-off on our income tax? What if we do some renovations on the cottage?
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david ingram replies:
This is a difficult quetion to answer because I do not know what percentage of the time you intend to use it yourself.
However, here goes:
1. If you bought it to rent out and "not" use yourself, you can write off all the interst, all the taxes all the Repairs and Maintenance and all the rental agent's fees, etc.
2. If you bought ti to use for July and August yourself (trhe heavy season), and you are going to try and rent it for a couple of weeks in June or a week in September, then the answer is that nothing can be written off because it is clearly a personal; use item.
3. If you bought it to rent out most of the time, make it available through an agency and only plan on using it when it is not rented, then the answer is somewhere in between with your writing off all the expenses as in "1" above and then pro-rating the expenses for a personal amount. Canadian Schedule T776 shows a rental in this case with a place to add back personal portions of the expenses. see http://www.ccra-adrc.gc.ca/E/pbg/tf/t776/README.html
Improvements to the property are NOT deductible against other income. Improvements can be added to the Adjusted Cost Base of the cottage and depreciated over the years as a Class 1 item at 4% (2% the first year). The original purchase price of the building (not the land) can be depreciated at as well. AND since it is furnished,there would be depreciation allowable on the value of funitutre and appliances at 20% a year (10% in the first year).
Find out more about depreciation by reading the guide at:
http://www.ccra-adrc.gc.ca/E/pub/tg/t4036/README.html
What most people call depreciation is called CCA for Capital cost Allowance in the guide.
Hope this helps.
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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