Rental income abroad - how to report correctly

[SD_GR]

Hello,

A rental property abroad comprises several apartments in a single building, and each apartment is governed by a lease agreement.

One tenant does not pay the rent for an entire year. This tenant is evicted.

The local tax laws abroad have the following peculiarity: the owner reports income according to the lease agreements, whether the income is collected or not, and is taxed on the income stated in the lease agreements, whether it is collected or not. The owner can then sue the bad tenant, and if the money owed to the owner is never collected, the owner can then go through a process allowing them to get credit for the taxes paid on income never earned.

How does Canada handle non-payment of rent? If an owner has a lease for, say, $12000 a year or $1,000 a month, is the owner taxed on that income even if they do not receive it? Does the owner declare that "income" and then also declare an equivalent sum as a loss during the same tax year?

I may be complicating things and if so I apologize; I am unfamiliar with the Canadian system and if there are implications to the "accrual" method vs. the "cash" method for reporting rentals.

Note that I am asking specifically with respect to filling out the OAS income return; in other words, what I am asking is, does a signed lease obligate a rental owner to report that amount as income even it will never be collected?

 

[steaky]

I would hire an accountant to report those income.

 

[SD_GR]

Thanks.

Your answer seems to imply that this is not a straightforward answer, as in:

- Canada only taxes income actually received regardless of what a disputed lease or contract in another country might say

or

- Canada taxes all income expected from a lease signed in another country, regardless of whether that income actually ever materializes.

Today is a holiday so I cannot call revenue and ask directly.

Anyone know for sure?

Thanks again.

 

[toby]

Hello,

A rental property abroad comprises several apartments in a single building, and each apartment is governed by a lease agreement.

One tenant does not pay the rent for an entire year. This tenant is evicted.

The local tax laws abroad have the following peculiarity: the owner reports income according to the lease agreements, whether the income is collected or not, and is taxed on the income stated in the lease agreements, whether it is collected or not. The owner can then sue the bad tenant, and if the money owed to the owner is never collected, the owner can then go through a process allowing them to get credit for the taxes paid on income never earned.

How does Canada handle non-payment of rent? If an owner has a lease for, say, $12000 a year or $1,000 a month, is the owner taxed on that income even if they do not receive it? Does the owner declare that "income" and then also declare an equivalent sum as a loss during the same tax year?

You report only the income actually received, less any expenses to maintain the property. There is a separate area in the Canadian tax return to note expenses, so report gross income.

I may be complicating things and if so I apologize; I am unfamiliar with the Canadian system and if there are implications to the "accrual" method vs. the "cash" method for reporting rentals.


Note that I am asking specifically with respect to filling out the OAS income return; in other words, what I am asking is, does a signed lease obligate a rental owner to report that amount as income even it will never be collected?

If you DID eventually collect rent owed, you would declare it at that time.
In cases like these, it is a good idea to explain briefly in a cover letter why you have completed the tax return in the way you have -- to eliminate any misunderstandings. Then, if CRA wants it done in a different way, they will tell you.

 

[SD_GR]

Thank you.

I rang and asked, and the very helpful people at the revenue office echoed your very helpful response.

This makes sense.

I appreciate both responses and thank you both again.