QUESTION:
Hello! Love your site!
I purchased my condo new in 1994 and lived in it briefly (until 1996) before purchasing another property. I have subsequently rented my condo out since 1996 and then in 1999 (approx) there were leaks discovered etc etc.
The current assessment is approx 47k! and work is scheduled to start this fall. As I have been reporting income (and paying tax on the profit!) on this unit since 1996, can I safely assume that all leaky condo expenses (including legal fees) can be written off 100%, and that I will not have to capitalize regardless of whether the building materials have changed? (They are changing from stucco to hardy board.)
I am unsure whether they would consider the exerior change as an "improvement" when in fact it is just obviously repairing this structure to original condition with alternative products. I called the CCRA and they were unclear but felt it might an improvement??? I'm not sure how they come up with that?
Any special hints or considerations when submitting my personal taxes this year end to ensure a problem free process? Do I need an actual invoice from the strata? Or will the master list of units and associated assessments (plus my cancelled cheque) be sufficient? Will they question this write off at all? I usually e-file. I've heard that e-filing can contribute to red flags and audits if the y/e is unusual.!?
Thank you.. This is difficult enough without having to worry about this aspect too!
SXXXXXXX
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david ingram replies:
The leaky expenses should be deductible because you did not know about the leaky situation when you started renting it out.
NO ONE can guarantee that the CRA (new name) will not challenge it, but it has been my experience that true rental leaky condos are being allowed the repairs as expenses with no improvement calculation imputed. On the other hand, those who move out of a leaky condo and rent it because the "repairs will be deductible" ARE having the repairs added to capital because they knew about the situation when it was a personal residence.
Keep your Bills.
Do NOT submit anything with the return other than the T776 with the large loss.
DO NOT EFILE the return if you have student, RRSP, medical, charitable, business or rental expenses. It is my feeling that your chance of an audit increases dramatically. In particular, you can expect a letter in October asking to see the medical expenses, or see the charitable, or see the RRSP receipt. Although not an audit, I assure you it is easier to "just send them in" with the return than to spend two or three or four hours digging things out in October or November, particularly if they are looking at two or three years.
I have an interesting input into this at the COLCO (Coalition of Leaky Condominium Owners) site, www.myleakycondo.com - specifically at http://www.myleakycondo.com/ingram.htm
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