As the Canadian fall real estate market gains momentum, savvy investors are not just focused on buying and selling opportunities—they’re also keeping a close eye on their tax position. Whether you own rental properties, are considering a flip, or are expanding your portfolio, fall is a great time to revisit your tax strategy.
Here are some key tax tips for real estate investors in Canada:
1. Review Your Rental Income and Expenses
Before the year ends, make sure you’re maximizing deductible expenses related to your rental properties. Common deductions include:
- Mortgage interest
- Property taxes
- Repairs and maintenance
- Insurance
- Utilities (if you pay them directly)
- Property management fees
Action: Collect receipts and invoices now—don’t wait until tax season. Many investors miss deductions simply because they cannot support them with documentation.
2. Consider Accelerating Expenses Before December 31
If you anticipate higher rental income this year, it may make sense to bring forward certain expenses:
- Prepay property taxes or insurance (if allowed).
- Complete maintenance or repairs before year-end.
- Purchase and install appliances or other assets before December 31 to start claiming capital cost allowance (CCA) earlier.
Action: Talk to your CPA before accelerating expenses to ensure this aligns with your cash flow and tax strategy.
3. Understand the Difference Between a Repair and a Capital Improvement
The Canada Revenue Agency (CRA) treats repairs and capital improvements differently:
- Repairs (like fixing a leaking faucet) are deductible in full in the year incurred.
- Capital improvements (like adding a new bathroom) are added to the property’s cost base and claimed over time through CCA.
Action: Document the nature of each expense with photos, receipts, and contractor notes. If CRA reviews your return, clear evidence will support your position.
4. Track Automobile and Travel Expenses
If you travel to your rental properties to collect rent, perform maintenance, or meet with tenants, those costs may be deductible. This includes mileage, gas, parking, and even meals in some cases.
Action: Keep a mileage log and retain fuel and maintenance receipts. Apps that track vehicle use make this much easier.
5. Review Your Structure—Personal vs. Corporation
With interest rates high and margins tighter, many investors are reconsidering whether to hold properties personally or through a corporation. Each has pros and cons:
- Personal ownership: Simpler filing, access to the principal residence exemption (if applicable), but rental income is taxed at personal rates.
- Corporate ownership: May provide tax deferral opportunities and liability protection, but involves more compliance costs and restrictions (such as passive income rules). This is generally better if the funds to pay for the property starts out in the corporation (i.e. other business income).
Action: If your portfolio is growing, speak with your CPA before purchasing your next property to determine the best structure.
6. Plan Ahead for a Sale or Flip
Profits from selling a property may be taxed differently depending on whether it’s considered:
- Capital gain (50% taxable), or
- Business income (100% taxable, common for “flips”).
CRA looks at factors such as intention, frequency of transactions, and how the property was used.
Action: If you’re planning to sell a property, review your intention and documentation with your CPA. The difference in tax treatment can be significant.
7. Don’t Forget About GST/HST on New or Substantially Renovated Properties
If you’re investing in new builds or major renovations, GST/HST may apply on the sale or rental of the property. There may also be rebates available for GST/HST paid.
Action: Confirm whether your project triggers GST/HST obligations before listing or renting out the property. Missing this step can lead to expensive surprises.
8. Leverage Losses Wisely
If you’ve experienced a rental loss (perhaps due to higher interest rates), these losses can usually be applied against other income. Losses from capital cost allowance, however, cannot be used to create or increase a rental loss.
Action: Work with your CPA to model how best to use rental losses this year and whether to carry them forward.
9. Keep an Eye on the Underused Housing Tax (UHT)
The UHT continues to impact certain Canadian residential properties owned by non-residents and private corporations. Penalties for not filing—even if no tax is payable—are steep.
Action: If you own property through a corporation, partnership, or trust, confirm whether you must file a UHT return by April 30, 2025.
Final Word
The fall market is a busy time for real estate investors, but don’t let tax planning fall to the sidelines. Proactive steps taken now can save you money, minimize headaches during tax season, and ensure you’re making the most of your investments.
Reach out to JMH today for a tailored review of your real estate portfolio and tax strategy before year-end.
This blog was written using the assistance of ChatGPT.
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