How is the rent of a member of the family or partner taxed?

Rental income

If you earn rental income, report it in your personal tax return on Form T776 Real Estate Rent Invoice. You can claim rental expenses to scale back your taxable rental income. Common expenses include:

• Advertising
• Insurance
• Mortgage rates of interest
• Legal and accounting fees
• Administrative fees
• Condo Fees
• Repairs and maintenance
• Property taxes
• Utilities

This list shouldn’t be exhaustive, and repairs and maintenance will be complicated as some longer-term expenses – equivalent to a renovation – could also be capital expenditures that should be depreciated over time.

Loss of rent

If you’ve got more expenses than income, you could lose out on rent. A net rental loss will be deducted out of your other sources of income. This can result in tax savings.

If you’ve got ongoing rental losses, particularly if the losses are on account of charging low rent, the Canada Revenue Agency (CRA) may ask questions.

Rent below fair market value

If you might be charging below market rent because you’ve got a long-term tenant and provincial guidelines limit rent increases, this may occasionally be an exception. However, if the rent is low since you pay an individual you’ve got nothing to do with, equivalent to: For example, if you happen to give an excellent deal to a member of the family, this could negate your ability to say lost rent.

“In certain cases, you can ask your son or daughter or another person who lives with you to pay a small amount for the upkeep of your home or the cost of groceries,” the CRA says. “You do not report this amount in your income and cannot claim rental costs. Because it is a cost-sharing agreement, you cannot claim loss of rent.”

This appears to be the case together with your clients, Hans, so I might say that the “rent” shouldn’t be taxable rental income, a minimum of within the eyes of the CRA.

Common law status

You mention a 3 yr time horizon for common law status in Ontario. This is a family law concept and will be applied when two persons are in a conjugal relationship. After three years of living together, one party could have to pay maintenance payments to the opposite if the connection fails. Exceptions may apply, particularly in the event that they have a baby together.

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The implications for family law will be complex and vary by province and territory. In some parts of Canada, common-law couples have the identical rights as married couples, and property rights may even apply to common-law couples.

Regardless, it will be important to notice that for tax purposes there is barely a 12 month threshold before common law status applies. Once a pair has lived together for a yr, they need to report this alteration in status on their tax return. It’s not optional.

If a pair lives under common law, they could give you the chance to save lots of taxes by combining medical expenses or donations on one spouse’s tax return to receive higher, non-refundable tax credits. However, they may additionally lose access to certain means-tested government advantages, equivalent to the GST/HST credit.

Summary

Rental costs can only be deducted in the event that they are incurred to generate income. If someone pays you “rent,” it will not be rent from a tax perspective if it is just a cost-sharing arrangement.

Although you’ll be able to rent a property to a member of the family, it should be treated as if the tenant were a stranger. Therefore, make certain you understand the principles so that you could file your tax return accurately.

About Jason Heath, CFP

Jason Heath is a fee-only, advisory-only Certified Financial Planner (CFP) with Objective Financial Partners Inc. in Toronto. He doesn’t sell any financial products.