Costs during renovation - Rental property

groobi · ‎May 26, 2021

Hi I'm still confused after reading the rules couple of times and hope someone can shed light.

- January - October 2020: Renovation period, soft costs, no rental income

- November - December 2020: Earning rental income

1) Soft costs January-October 2020 - I can't deduct as current expense due to no net rental income so I have to capitalize.

2) Soft costs November-December 2020 - I can deduct as current expense up to net rental income and the rest is capitalized.

2) CCA - I can't claim CCA during renovation period.

3) Landscaping during renovation period - I can claim it throughout the year.

Do I understand correctly?

BSBbkkbtax · ‎January 20, 2022

Please give other opinions on this if there may be other solutions but I would claim as follows: You would claim the expenses you incurred during the year as normal. Any items that need to be capitalized would be treated as usual. You will just be reporting a loss for this year.

You claim any expenses in the period which they were incurred (date on invoice or cheque).

Report the income as usual.

Again, reporting all as normal just will be a loss for this year.

Hope that helps.

jrbooks · ‎January 26, 2022

Essentially, all costs incurred before the rental property is ready to be rented out are considered capital in nature. Once the property is "on the market", the running costs (utilities, insurance, etc.) become normal expenses, as do normal repairs. However, major repairs (replace windows, roof, furnace, etc) will be considered capital in nature even when occurring while the property is being rented our or between tenants and need to be added to the ACB of the building. there is a recent exception to this if the modifications to the property are to accommodate persons with disabilities.

Do you take CCA on the building? It depends. Generally, I would not recommend it as property values tend to increase over time and the owner will be in for a nasty shock when he/she sells and is faced with recapture, which is fully taxable.

I attach a couple of CRA links.

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/rental-income/capital-expense...

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/rental-income/completing-form...

Hope this helps.

Jo