Deducting expenses related to a building

As owner of a rental property or building used to operate a business, you are eligible for certain tax deductions.

Deductible expenses fall under 3 categories: current expenses, capital expenses and extraordinary expenditures.

Current expenses

Current expenses can be fully deducted from rental or business income in the year they are incurred. They are the expenses you incur on a recurring basis to keep the building in the same condition as it was when you acquired it.

Any improvement on the building is considered a capital expense.

Here are a few examples of current expenses:

  • mortgage interest
  • property taxes
  • home insurance premiums
  • heating and electricity
  • management, administration and office expenses
  • recurring maintenance and repair work to maintain the value of the building or to return the building to its original state (replacement of carpeting, painting inside walls, replacement of windows and doors, etc.)
  • landscaping for esthetic reasons
  • costs to operate a motor vehicle, under certain conditions

Capital expenses

Work to significantly improve the state of the property, such as restoration or expansion, is considered a capital expense.

Here are a few examples of capital expenses:

  • replacing wooden steps with concrete steps
  • installing siding of higher quality and durability
  • addition of a garage

Capital expenses are added to the cost of the property and lead to a capital cost allowance deduction. This deduction, which reduces rental income, is calculated on the annual tax rate.

All repairs carried out for the purpose of selling the building or as condition of a 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

Renovating an existing rental or business property to make it more accessible for the handicapped is an extraordinary expenditure. You can deduct (not capitalize) your expenses for the year for renovations such as:

  • installing hand-activated power door openers
  • Installation de rampes intérieures et extérieuresinstalling interior and exterior ramps
  • modifying a bathroom, elevator, or doorway to accommodate wheelchairs