Deducting expenses related to an immovable

Did you know there are various expenses related to an immovable?

Expenses related to an immovable (rental property or a building used to operate a business) can be, in some cases, deducted as a current expense or, added to capital expenses, leading to a capital cost allowance deduction.

• Current expenses
• Capital expenses
• Extraordinary expenditures

Current expenses

Current expenses can be deducted from rental or business income in the year they are incurred. The term “current expenses” refers to expenses that are incurred on a recurring basis and that do not result in a long-term advantage. They are the expenses you incur to keep the building in the same condition as it was when you acquired it.

Other than operating expenses (e.g.: mortgage interest, property taxes, car or home insurance premiums, heating and electricity), the following are expenses that could be considered current:

• maintenance and repair work to maintain the value of the building or to return the building to its original state;
• replacement of electrical systen, windows, doors, etc.;
• landscaping for esthetic reasons;
• costs of operating a motor vehicle, under certain conditions.

When an immovable is used partially for personal reasons, you have to exclude the deductible expenses on the portion of the space you are living in. You can base your expense calculations (reasonable) on your square footage or number of rooms.

Capital expenses

Capital expenses have to be added to the cost of the immovable and can then lead to a capital cost allowance deduction based on the annual tax rate (to reduce business or rental income). In doing this, you add to the cost of the immovable, renovations that provide a lasting benefit or expansion work that significantly improves the immovable over its initial state. For example, adding a garage is a capital expense. Any repairs made with a view to selling the immovable or as a condition of sale, are capital expenses.

If you acquire other assets for business or rental purposes, such as furniture or equipment, you can deduct the capital cost allowance of these assets at the current rate.

For rental property owners, the capital cost allowance claim cannot be:

• higher than the net rental income for the year;
• used to create or increase a net rental loss.

Extraordinary expenditures

You can, under special circumstances, renovate an existing rental or business immovable to make it more accessible for the handicapped and deduct (not capiltalize) your expenses for the year to make the following renovations:

• installing hand-activated power door openers;
• installing interior and exterior ramps; and
• modifying a bathroom, elevator, or doorway to accommodate wheelchairs.

For all of the articles, visit the Did you know page.