Rental Properties

[siamk]

Hi

I am considering moving to Canada in one year time and would like to know more about the taxation policy in Canada.

I have a rental property in Australia so the question I have, do I have to declare this as income in Canada?

If so, am I eligible to claim any deductions/claims(e.g insurance, council rate, water rates) associated to this property in Canada?

Also what is the tax rate for rental property?

 

[steaky]

Yes, you need to report this rental income to CRA when you becomes a tax resident. Every province and territories have different tax rates.

 

[toby]

Hi

I am considering moving to Canada in one year time and would like to know more about the taxation policy in Canada.

I have a rental property in Australia so the question I have, do I have to declare this as income in Canada?

If so, am I eligible to claim any deductions/claims(e.g insurance, council rate, water rates) associated to this property in Canada?

Also what is the tax rate for rental property?

Yes, you declare the gross rental income, and deduct legitimate expenses annual expenses. You add that net rental income to your other personal income, and are taxed on the total amount - the highert the total amount, the higher the tax rate. There is no specific tax rate on rental income, per se.

When you sell your property, since it is not your principal residence you will be taxed on the difference between what you paid for it and the selling price. This will be taxed as a capital gain (you are taxed on 50% of the gain).

You may also declare depreciation on your property, which will reduce the tax payable on the rental income, but this has repercussions when you sell the property, so best consult an accountant. Consult once, then do it yourself after that.

 

[Jonboy]

.

When you sell your property, since it is not your principal residence you will be taxed on the difference between what you paid for it and the selling price. This will be taxed as a capital gain (you are taxed on 50% of the gain).

To add to this: it is the difference between the net sale proceeds (converted into CAD on the date ruling when you sold) and the value of the property on the day you became tax resident in Canada (converted into CAD on the date ruling when you arrived) that forms your capital gain in Canada. The taxable part of the capital gain is 50% of the result of this calculation.

 

[MandiF]

I've just been reading through the forum and have found this and I have a bit of a concern about it, as I have a house in UK that I will be renting out when I get my visa through to live in Canada with my husband.

I have been told by the Rental management companies in Uk that I will have to pay 22% tax on the income in the UK as I will be an overseas landlord, and now I'm finding out that I also have to pay tax on it in Canada?

Is this true???

 

[toby]

I've just been reading through the forum and have found this and I have a bit of a concern about it, as I have a house in UK that I will be renting out when I get my visa through to live in Canada with my husband.

I have been told by the Rental management companies in Uk that I will have to pay 22% tax on the income in the UK as I will be an overseas landlord, and now I'm finding out that I also have to pay tax on it in Canada?

Is this true???

You report the gross rent income in your Canadian tax return, then deduct all expenses (mortgage interest, repairs, etc.) You also deduct tax paid to the UK on this income (I'm not sure whether you need to attach the proof of UK taxes paid or just keep it in case CRA asks). So, no, you're not taxed doubly on the rental income.

If you plan to keep the house for ages, one deduction you can claim in Canada is depreciation. There is a accepted schedule for the decline in value of the building (land appreciates in value; buildings decline in value with age). However if you sell the house this depreciation is "recaptured", so this is worth exploring (once) with an accountant so that you know exactly what to do about this.

Leaving Canada for good would be considered in effect a sale of the house (a deemed disposition), so don't think to avoid recapture by never actually selling the UK house. Death also triggers a deemed disposition.

Why bother with depreciation? It might not be worth it. Or, if you are earning a high income from (say) employment, and the additional rental income would be highly taxed, depreciation reduces the Canadian tax payable. Then in retirement, when other income is lower, you could then repay the tax saved through claiming depreciation, but end up paying less. Better to pay tax later than sooner, but te bookkeeping is annoying.

 

[Jonboy]

I have been told by the Rental management companies in Uk that I will have to pay 22% tax on the income in the UK as I will be an overseas landlord, and now I'm finding out that I also have to pay tax on it in Canada?

Look at the non-resident landlord scheme in the UK. http://www.hmrc.gov.uk/cnr/nr_landlords.htm

Complete the NRL1 form to apply to have your rent paid without deduction of tax. It the profit you make on the rental is less than your personal allowance (or combined allowances if the property is jointly owned) then you will not have a UK tax liability and will not have to file UK tax returns unless HMRC ask you to.

Profit is rent received less mortgage interest, house insurance, repairs and maintenance, and agents fees.

Unfortunately the profit will be taxable in Canada. However, if your profit exceeds your personal allowances and you end up paying tax in the UK you can deduct this tax from the Canadian tax that would be owing on the same income. You don't pay tax twice.

 

[MandiF]

Thanks so much for your help, I never thought much about it, just that I was going to rent out my house now I realise, I so do have to do more about it than I thought.

More damn forms!

 

[toby]

Jonboy is too cultured to mention it, but he is a practising accountant in Canada, and might be able to help you sort through the blizzard of forms.

 

[MandiF]

Ahh of course, thanks so much Jonboy, a useful chap to know then!

;D