If you will be investing in real estate in Milton, Toronto or anywhere else, it’s important that you know the rules. Here’s a very common question, and the answer from Louis Sapi, LLP from Toronto:
Question: I want to buy properties, rent them out and have the tenants pay the mortgage and expenses while I write-off net rental losses against my other income. Is there any tax problem with this plan?
Answer: The properties need to be available for rent during the tax period. The tenants should be paying rents at prevailing market rates. Your children or relative tenants renting at discounted rates would increase net loss and raise a flag with tax authorities. You must add the costs of renovation to the value of the building during the period the rental unit is not available for rent. The value of land, if any, is separated from the building value that is subject to capital cost allowance. You may reduce rental profit by the capital cost allowance for that particular rental property. You may not increase a rental loss by capital cost allowance. Mortgage interest, not mortgage principal, would be tax deductible expense. Net rental losses would be deducted against other income.
Yes, capital gains issues are complex, but the right professional advisor will help you find the best tax strategy to achieve your real estate and related goals, short- and long-term. Ask a lot of questions before you act.