While being a landlord can be profitable, given the rental income and capital growth, you also have to shoulder a few responsibilities, and in addition to the maintenance of the property, you are also liable for taxation.

If you are in possession of rental property, you need to understand the implications of this when you sit down to do your taxes. As a landlord, when filling out your income tax annually, you need to declare all income and costs from the past tax year, regardless of whether you have made a profit or not. For this purpose, it is essential to preserve and maintain all sorts of records, receipts, invoices, and statements for a period of up to six years, to be on the safe side.

If you are a landlord, the first thing you must do is determine whether the source of your rental income is property or business. As per the Canada Revenue Agency, if all you do is rent space, and provide your tenants basic facilities (such as heat, electricity, and parking), this is considered rental income from property; if you provide additional services (like cleaning, and meals, etc) then this is likely to be considered rental income from business. If your rental income is from property, you will be required to fill out Form T776 Statement of Real Estate Rentals, along with the T1 Income Tax Form, and if your rental income is from business, you will need to fill out the Form T2125, Statement of Business or Professional Activities.

The good news for landlords, as far as taxation is concerned, is that they can be subject to the Alternative Minimum Tax (AMT), if they have suffered considerable rental losses, owing to high financial costs – however, you cannot claim rental loss if you are allowing your tenant to pay a rent that is considered lower than the usual rent for this sort of accommodation (referred to as renting below Fair Market Value, by the Canada Revenue Agency). In addition, individuals who are in possession of rental property are also exempt from taxation on the capital – this is applicable both on the federal level, and in the provinces.

Moreover, landlords owning rental property can also benefit in terms of taxation because they can write off their rental costs against the income they generate. If the costs exceed the amount of profits generated, they can be adjusted against other income sources.

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