Below is the result of a form post from your website. It was submitted by (webmaster at jurock.com) on Monday, May 9, 2005 at 16:13:44 --------------------------------------------------------------------------- My question is: Canadian-specific QUESTION: My wife and I own several rental properties. Over the last three years renovating them has exceeded expenses so the loss was written off on my income. (my wife had no outside income however has now started working part time this year) Now too this past year and from here on, the houses are profitable. In canadian tax law can I now have the income from the houses shown as my wife's income or at least split with my wife as she is an equal owner. --------------------------------------------------------------------------- david ingram replies: The first statement I would make is that "renovating" any rental unit is not a deductible expense on a Canadian Income tax return. Renovations are usually considered additions to the ACB (adjusted cost basis) of the building and can be depreciated against rental profit at 4% per year on the diminishing balance but can not be used to create or increase a loss. I am referring to renovations here, not repairs which is different. If a person buys a new rental and knows when he or she bought the unit that they were going to repair / renovate / remodel / improve the bathrooms and kitchens and paint the whole building before their first rental, none of the fixing up / renovating / remodelling, etc expenses are deductible because they are absolutely (no exceptions) a capital addition to the building. On the other hand, if one buys a building, has a building inspection saying that the building is in perfect condition, and then finds out six months later that there is dry rot running under the floor of five suites and spends $50,000 fixing it, that would be a repair. And, if one had a rental for five years and the roof needed $6,000 of repairs and a decision was made to spend $12,000 and raise the roof to sneak in an attic room and get more rent, the $12,000 would usually be considered an improvement although the general accepted method is to deduct the amount that it "could have" been repaired for and add the difference to the ACB. Partnerships and losses are another thing. It is not unusual for partners to work together and split the results in a manner that is not consistent with the strict ownership but which fits their own perception of who did the most or who put in the most, etc. When one partner covers all the losses, it is not unusual for that partner to take all the expense. And, in my 42 years in this business and the administration of over 700 offices at one time, I have never seen the CRA change a partnership percentage. My answer is that one MUST split the profits or losses now if the property is carrying itself and if both parties are putting in equal amounts. Remember that one partner may be putting in "sweat labour" and the other may be putting up the cash. I am however, sending this out to the CENTAPEDE, www.jurock.com and www.featureweb.com lists to see if anyone else has an "official" take which I have missed. I, for one, would appreciate any contrary opinions and reasons. Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Dundee Wealth Management and I, David Ingram host a LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the internet at www.600AM.com <http://www.600am.com/> Local calls are taken at (604) 280-0600 and Long Distance calls (BC only) are taken at 1( 866) 778-0600 Callers to the show are invited to attend free seminars on financial planning with such specialities as deductible mortgage interest. They are held at Fred Snyder's Office at 1764 West 7th in Vancouver - (604) 731-8900 for more information. ========================================= David Ingram's US/Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Res (604) 980-3578 Cell (604) 657-8451 (604) 980-0321 Fax (604) 980-0325 Email to taxman at centa.com <mailto:taxman at centa.com> www.centa.com <http://www.centa.com> www.david-ingram.com <http://www.david-ingram.com/> Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com <http://www.centa.com> . If you forward this message, this disclaimer must be included." Be ALERT, the world needs more "lerts" ============================== -- Internal Virus Database is out-of-date. Checked by AVG Anti-Virus. Version: 7.0.308 / Virus Database: 266.10.3 - Release Date: 4/25/05 -- Internal Virus Database is out-of-date. Checked by AVG Anti-Virus. Version: 7.0.308 / Virus Database: 266.10.3 - Release Date: 4/25/05
