To ensure compliance with tax laws as a corporate business owner or manager, it is crucial to understand how a Canadian-Controlled Private Corporation (CCPC) taxes rental income.
Under the Income Tax Act (ITA), all income received from renting out property, such as residential real estate, must be reported on a taxpayer’s T2 Corporate Income Tax Return. To calculate the amount of tax that needs to be paid on such rental income, it is important to understand how each type of rental property will be treated in regards to taxation.
The Simplest Way To Understand How Rental Properties Are Classified
Rental properties can either be classified as “active” or “passive.” Active rental properties are those where the taxpayer has been actively involved in managing and operating the rental property, such as providing repairs, dealing with tenants, and court proceedings. As a result of being actively involved in managing the rental property, these rental properties are taxed at a lower rate than passive rental properties.
Passive rental properties are those where the taxpayer is not actively involved in managing or operating the rental property and is simply collecting rent on an ongoing basis. These passive income streams are usually subject to higher tax rates than active income streams due to their nature.
How Do You Know Which Taxes Apply To You?
Under the ITA, CCPCs can deduct certain expenses related to renting out their property from their taxable income before calculating any tax liability. This could include things like maintenance costs, utility bills, mortgage interest payments, and insurance premiums. The amount of deductions available will depend on the type of rental property and whether it is classified as active or passive income.
It is important to note that CCPCs may be subject to taxes other than corporate income tax when they rent out their property. For example, GST/HST may apply if the renting activity is considered a taxable supply, while provincial land transfer taxes may also come into play depending on where the rental property is located.
It’s crucial to understand how rental income from a CCPC perspective will be taxed, if you’re a corporate business owner and manager trying to stay compliant with tax regulations. Deductions are available for certain costs associated with renting out the property. Additional taxes such as GST/HST or provincial land transfer taxes may also be applicable.
The Easiest Way Is To Get Help. Here’s Where To Look
It is always advisable to seek professional advice from a tax specialist or accountant in order to understand your specific tax obligations as a CCPC owner. This will help you avoid any penalties and be absolutely sure you are paying the correct amount of taxes on your rental income.
Here at Canada Tax Consultants, our team of experts has years of experience helping corporate business owners and managers with their rental income tax obligations. If you have any further questions, our team here would love to help. Contact us today.
