Are Property Management Fees Tax Deductible?
In Canada, there are a variety of costs associated with maintaining a rental property that are tax deductible, property management fees included. Typically, you’ll claim your rental property’s expenses on a Statement of Real Estate Rentals (Form T776). However, it can be tedious to record or filter through your property’s various expenses if you’re unsure of what exactly can be claimed. Luckily, we’ve compiled a simple guide to the types of expenses that may be claimed on your rental property’s tax return.
current vs. capital expenses
Essentially, most practical costs a landlord expends to collect rental income is tax deductible in Canada. The Canada Revenue Agency (CRA) further considers most rental expenses to fall into two categories: current expenses and capital expenses.
Current expenses will occur on a somewhat consistent basis, such as property management fees, regular maintenance costs, or advertising costs. These will be claimed in Part 4 of your T776. Capital expenses will occur at fewer intervals, and the benefits of the expense will last over time and improve or add value to the property, such as renovation. These will be claimed separately in Area A of your T776. In terms of deduction, current expenses will be tax deductible annually, whereas capital expenses will be deducted over multiple years.
types OF TAX DEDUCTIBLE EXPENSES
The CRA lists the following as tax deductible expenses that may be claimed on Form T776:
Advertising
When listing your property for rent, it's likely you'll incur some advertising fees. Advertising fees can rack up quickly, so be sure to claim these costs on line 8521 of Part 4.
Insurance
Insurance premiums paid on your rental property for the year can also be claimed on line 8690 of Part 4. Make sure to only list the premiums related to the current year.
Interest and Bank Charges
If you've borrowed money to buy or improve a rental property and incurred interest charges in doing so, you may deduct these annually on line 8710 of Part 4. Any fees incurred during the application process for these loans, such as applications, appraisals, processing, insurance fees, brokerage fees, finder's fees, or legal fees, may be claimed here as well. Further, you may also deduct interest charges you've paid out to your tenants on their rental deposits.
Office Expenses
These expenses will relate to any smaller purchases, like pencils, paper clips, stationary, etc., and can be claimed on line 8810 of Part 4. Larger items, such as furniture and calculators are considered capital items and will need to be filed separately in Part A.
Professional Fees (Including Legal and Accounting Fees)
Have you utilized any legal services to prepare leases or collect overdue rent? How about accounting services for your rental property? You may claim these expenses on line 8860 of Part 4.
Management and Administration Fees
Not only are property management fees tax deductible, but so are commissions paid to real estate agents who list your rental property for sale. Management and administration fees can be claimed on line 8871 of Part 4. For commission fees incurred while selling your property, though, you will need to include these separately as "outlays and expenses" on a Schedule 3, Capital Gains (or Losses) form.
Repair and Maintenance
This is primary category for which the differentiation between current and capital expenses comes into play. If you've contracted labour and materials for regular repairs that maintain a property, these can claimed under Part 4 of your T776. If you’ve incurred maintenance or repair fees that provide lasting benefits and improve the property, rather than maintain it, you will need to claim these expenses on Area A of your T776.
Salaries, Wages, and Benefits (Including Employer's Contributions)
If you’ve employed others to help manage or take care of your rental investment property, such as maintenance personnel or superintendents, you may claim their salaries, wages, and benefits on line 9060 of Part 4. However, you won't be able to claim any value from your own services.
Property Taxes
Keep a hold of your property tax returns and claim these amounts on line 9180 of Part 4. The property taxes incurred must be from the current year.
Travel
For travelling to exchange keys, collect rental payments, supervise repairs, and otherwise manage the property, you may be able to claim the travel costs of doing so. If you rent out multiple properties and these properties are in at least two different locations, you can claim all of the above travel expenses (except lodging) on line 9200 of Part 4. If you only rent out one property, you will not be able to claim travel costs incurred to collect rent, and will only be able to claim reasonable travel expenses if you receive rental income from one property that is nearby, you perform part or all repairs and maintenance, and you use your vehicle to transport tools or materials to your property.
Utilities
If you pay for your tenants’ utilities, you may claim any utility expenses, such as oil, gas, hydro, water, or cable on line 9220 of Part 4.
Motor Vehicle Expenses
To claim motor vehicle expenses, you will need to uphold the same requirements listed under travel expenses. If eligible, you may claim fuel, maintenance and repairs, insurance, license and registration, interest on money you’ve borrowed to buy a motor vehicle, or leasing costs.
Conclusion
For the many costs incurred by renting out your property, you'll be happy to know that many are tax deductible. For further information of how to file these taxes or which expenses are tax deductible, visit the CRA. If you have hired the services of a property manager, they should be sending you receipts or invoices for all of your incurred costs, which should help simplify your next tax return.
