PAUL DUECK MORTGAGES
  • Home
  • Services
  • Apply Now
  • About Paul
  • Testimonials
  • Blog
  • Tools

The Mortgage Minute

Why you should be reporting your rental income on your income taxes.

11/26/2020

1 Comment

 
Many landlords believe that they shouldn't report the income they generate from their rental properties in hopes of keeping more of the cash to themselves (and not the taxman). I am going to share a few reasons why it is necessary to disclose rental income to Canada Revenue Agency (CRA). Not only is claiming rental income necessary to satisfy tax law, but it can actually affect your qualifying ability when purchasing additional properties, and can benefit you in more ways than you might expect. 

1. Deductible Expenses and Taxable Income
Most landlords spend a large amount of money on expenses directly related to earning the rental income. Deductible expenses can reduce the taxable income and can have a significant impact on a tax return, but only if the landlord discloses their rental income to CRA. (I'm not an accountant, but here are some examples: advertising, insurance, interest on borrowed funds for the purchase, professional or management expenses, utilities, repairs, and maintenance).

2. Qualifying for Additional Mortgages
In some scenarios, not claiming rental income on your income tax returns can impact the approval amount when purchasing additional properties. To reiterate, in some scenarios not claiming rental income has no impact on qualifying for another purchase, but in a lot of scenarios it does. While there are many different lenders with their own unique lending guidelines and restrictions, I will speak to what I have seen, especially on insured purchases when a client with an existing rental property does not claim their rental income and is  looking to buy an additional property.

When qualifying for a mortgage, your debt service ratios need to be within a specific threshold (that varies on based on the lender, transaction, insurer, credit score, etc.). Basically, you can only have a  limited amount of monthly expenses compared to your monthly income. For example, the cost of all mortgage payments, property taxes, and condo fees (on all properties owned) have to be less than 35% (if insured through CMHC) of what the client grosses each month, or under 39% if insured through either of the other two insurers. Some clients with high incomes can qualify to hold all of their properties without factoring in any rent, and in those scenarios not claiming the rental income MIGHT NOT be a factor. However, if a client can't debt service holding their rental property (including property taxes and condo fees) and the new owner occupied purchase, then they need to show the rental income coming in to offset or reduce those costs. In order to use the rent most lenders will ask for a signed lease agreement and 3 months of bank statements showing rent deposits. In some cases the deposit history and lease agreement are sufficient, and other times the lender or insurer will want to see the previous year's tax return (sometimes two years) showing the rental income.

Claiming the rental income increases the lending options, and will give your client the most flexibility. Each lender has different policies, rates, and timelines, so having the most options available is ideal. Don't hesitate to reach out with any questions. 
1 Comment
Fantasti Frames link
9/3/2023 02:37:43 pm

You're the best

Reply



Leave a Reply.

    Author

    Paul holds a Master's degree in Business Administration, loves to golf, watch hockey, and drink black coffee.

    Archives

    March 2025
    February 2025
    January 2025
    February 2024
    January 2024
    December 2023
    October 2023
    July 2023
    June 2023
    May 2023
    October 2021
    August 2021
    June 2021
    April 2021
    March 2021
    February 2021
    January 2021
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    April 2020
    March 2020
    February 2020
    January 2020

    Categories

    All

    RSS Feed

Paul Dueck     204-791-9449    [email protected]      Castle Mortgage Group, 100-1345 Waverley St., Winnipeg MB R3T 5Y7

  • Home
  • Services
  • Apply Now
  • About Paul
  • Testimonials
  • Blog
  • Tools