Tax Saving Tips for Real Estate Investors in Canada
Tax Saving Tips for Real Estate are as important as Real Estate investments.There are two things certain in life, death and taxes. Majority of Canadians do not understand the complexity of taxation." A major portion of your earning goes toward your taxes which can be as big as 46-80% of your total earnings. Knowing a little about taxes can save you huge amount of money" says Navtaj Chandhoke, founder of Professional Real Estate Investors Group (PREIG) Canada.
In its T4036 Guide to Rental Income, the Canada Revenue Agency provides a number of questions you can ask yourself to help determine whether an expense is current or capital in nature. For example, you replace wooden steps with concrete steps, it's a capital expense. But if you simply repair the wooden steps, the expense is currently deductible.
Dont exaggerate your home office expenses. This is a red flag for the CRA. There are always exceptions, but a good rule of thumb is a maximum of 25 per cent as the business share of heat, hydro, property taxes and so on.
Keep a careful log of car expenses. This is another red flag for CRA.
If you run into trouble or make a mistake, call the CRA. Most times they will be very helpful, especially if you call before the crunch.
Whatever you do, dont ignore communications from the CRA, respond promptly and make notes of your conversation right on the letter for future reference.
Unless you are incorporated you are required to complete a Statement of Business and Professional Activities (T2125) at the same time as you file your personal taxes.
Dont wait until the last minute. Its impossible to get yourself properly organized under eleventh-hour time pressure and its difficult to make good decisions to minimize your taxes.
Make an estimate of your expected tax bill. If your revenue is going to be high, you might consider making that machinery or computer purchase before years end. Youll defray some of the expense through capital cost depreciation.
You should set aside 30 to 40 per cent of your gross income to cover income tax and CPP. Even if you are the only employee of your business, you are responsible for paying the employee and the employer CPP contributions.
Keep proper records differentiating business from personal If you cant prove it, the CRA will likely assume the expense is personal. Use the categories provided by CRA on the T2125.
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