Question on paying yourself for renovation work

[jcab256]

I am currently renovating a home and paying for everything out of a LOC. I will then remortgage to pay off the LOC, and then rent the home out.

Now, Can I pay myself, out of the LOC for renovation work that I do, without creating issues with the CRA, and possible interest deductability issues?

I hope that makes sense...

 

[JimWhitelaw]

I`m not an accountant, etc, etc... My understanding is that in this scenario, you would include your material and labour costs and LOC interest costs incurred up to the time it is ready for rental in your acquisition cost for the house. You can`t pay yourself for your own time.

 

[fumbrunner]

QUOTE (jcab256 @ May 19 2010, 03:36 PM) I am currently renovating a home and paying for everything out of a LOC. I will then remortgage to pay off the LOC, and then rent the home out.

Now, Can I pay myself, out of the LOC for renovation work that I do, without creating issues with the CRA, and possible interest deductability issues?

I hope that makes sense...


I`m not sure why you would want to do that even if you could (which you cannot). You will have to pay taxes on that income, where you would otherwise not have to. It may cause issues with your LOC because the interest deductability eligibility is based on the use of funds to gain investment income. I`m not sure how CRA would look at that, but it does make it messier than it needs to be.

 

[RCrein]

CRA doesn`t allow you to expense your own labour. There is specific mention of this in their bulletin on eligible expenses. However, you can pay a family member for their help. If you have a family member who helps out and has low or no other income their efforts will be tax free up to personal exemption and afterwards perhaps at a lower rate than your own. But they can only receive reasonable pay for the work performed. Check with one of our accountant members before you act on this.

 

[jcab256]

Thanks everyone. I didn`t think it would work, but was curious enough to ask.

FumBrunner, the reason I was considering this, is so that I would quit my `day job`, but still get paid for the work - I would essentially be paying myself.

 

[fumbrunner]

QUOTE (jcab256 @ May 20 2010, 08:11 AM) Thanks everyone. I didn`t think it would work, but was curious enough to ask.

FumBrunner, the reason I was considering this, is so that I would quit my `day job`, but still get paid for the work - I would essentially be paying myself.


AH, I see now. One option is to separate your "renovation business" from your rental business. You would have to check with an accountant, but I think you may be able to do it that way. So, you would essentially buy the property for X, add Y as inventory (materials, etc) and Z as your business income, with the total being your refinanced amount. The property then becomes a rental with the starting price at the refinanced amount. Again, check with an accountant but that may be the way to go.

Note however that your business income would be taxed at a higher rate than the capital gains rate if you were to hold for a few years and sell.

 

[jcab256]

QUOTE (fumbrunner @ May 20 2010, 07:48 AM) AH, I see now. One option is to separate your "renovation business" from your rental business. You would have to check with an accountant, but I think you may be able to do it that way. So, you would essentially buy the property for X, add Y as inventory (materials, etc) and Z as your business income, with the total being your refinanced amount. The property then becomes a rental with the starting price at the refinanced amount. Again, check with an accountant but that may be the way to go.

Note however that your business income would be taxed at a higher rate than the capital gains rate if you were to hold for a few years and sell.

Interesting....

I may look into this, and give an accountant a call....


Thanks Gerry