It’s that time of the year again, when you’ve just about had enough of winter, the snow starts to melt, and you can see summer sunshine just around the corner! I call these the mud months because there’s no more skiing or snow sports, but the water isn’t warm enough for all those summer sports to kick off yet…and of course it gets very muddy outside.
It can be so very difficult to deal with the anticipation of summer so close and to top it off, it’s also time to file your taxes! Which I think officially makes the mud months the worst part of the year for most people.
Looking for a fresh podcast to check out this season? Listen to The Last Honest Realtor right here or anywhere you get your podcasts!
I certainly feel this from my clients and homeowners alike during the month of March, and along with some of the grumpiness that comes with this time of year, we also get a lot of questions surrounding what sort of tax deductions are available for homeowners in Canada.
This is of course an especially interesting year as we have an upcoming election and one of the larger debates between governments has been capital gains tax on real property… so let’s start here before we get into income and expense deductions.
So, Can You Claim Property Taxes on Your Tax Return in Canada?
Currently in Canada, your primary residence is 100% exempt from any capital gains tax. This means that any amount your residence has appreciated over the time you’ve owned it is completely non-taxable. Anecdotally, I find that many Canadians take this rule for granted or at least feel that it is some sort of inalienable right. That said, I think it’s important to note that other countries like Britain once enjoyed the same exemption, but are now subject to tax on a portion of their primary residence, so it seems nothing good lasts forever.
Owning a home is considered one of the best financial decisions an individual can make. If you have some more questions about the numbers side of owning real estate, here are a few more posts you might find interesting:
- How Will Tariffs Affect the Canadian Housing Market
- Can You Use the FHSA to Buy an Investment Property in Canada?
- Fixed Rate Vs. Variable Rate Mortgage: A Guide for Home Buyers
Primary Residences Vs. Secondary Residences
When it comes to secondary properties or Investment properties you own outside of your elected primary residence, there is a capital gain to pay upon disposition or transfer. Currently this tax amounts to 50% of gain, which is then taxed at your specific income tax bracket but the liberal government had recently threatened to increase this amount to 66.6% of your capital gain … a policy they are currently in the process of revoking due to the upcoming election.
How much does it actually cost to own a home in Toronto? Read this post to find out.
Ontario Tax Deductions for Homeowners
Perhaps more importantly are the tax deductions you are eligible to claim as a home owner on your annual tax file. There are certain programs like the Ontario energy and Property Tax Credit (OEPTC) that vary from province to province available to lower or moderate income households so you should check your specific provincial regulations, but for most homeowners in Toronto these are not substantially relevant.
Tax Deductions on Income-Generating Properties
Generally speaking, to be eligible to deduct expenses from any asset (including your home) on an ongoing basis, it must be linked to some form of revenue or income. If you have an investment property for example, most operating expenses associated with the operation of that property can be written off against the revenue that property generates including the interest (not the principal portion) you pay on your mortgage.
The same is true of any partial income your primary residence may generate. If you live in a duplex or have a basement apartment for example, the portion of the property expenses associated with the income that amount of the property generates can be deducted from your tax liability.
The key here is that any deduction must be linked to revenue in order to be eligible. That said, if you don’t have any direct rents coming from your property, you must still show that any household expenses are directly linked to some form of income. This is why and how many higher income households, especially those who are self employed, will have a home office.
Owning real estate as an investment strategy is just like running a business. If you have real estate investing questions, here are some more posts you might like:
- Do You Need to Hire a Property Manager as an Investor?
- Selling a Vacant Property in Toronto
- Avoiding Rental Scams in Toronto: A Guide for Landlords and Tenants
Tax Deductions For Remote Workers in Canada
If you work from your home in any capacity, a portion of all your home expenses can be deducted from your annual income as it flows that a portion of those expenses are necessary to generate that income. This of course must be calculated within reason, often by the square footage or prorated utility usage of the home office, but you can legally deduct a portion of most home ownership expenses once you can prove this. This includes monthly utilities such as, gas, hydro, phone along with your property tax and even mortgage interest.
This has all been more commonly known to the self employed, but it has become easier and easier for many employees to claim now too, as the work from home trend boomed throughout and after the Covid-19 pandemic However, many employees are unaware that they may be eligible for home office deductions. To claim these, your employer must provide a T2200 form confirming that you are required to work from home. But if you have a home office or the ability to set one up, it is certainly worth a conversation with your employer to gain eligibility and to make sure you have the right accountant, come tax time.
Do you have more questions about buying or selling real estate in Toronto? We’d be happy to help! Get in touch today by filling out the form on this page, calling 416.642.2660, or emailing admin@torontorealtygroup.com.
Want More Insights From TRG Experts?
Sign up here to receive Insights Magazine delivered to you. This resource is full of market advice and industry intuition from our team and colleagues to keep you up-to-speed on the ever-changing Toronto real estate market.
