REIN membership fee.. considered what expense?

[TommyK]

Hi fellow REIN members!It`s the tax season. I know some of you have mentioned it before, but what should I write off REIN membership fee under? education? professional association fee? Can REIN fee considered an expense under Statement of Rental Income? (under professional fee)

I work full-time (employee) and own 2 revenue properties, if this helps.

Can anyone (accountant?) inform me on this?

Thank you in advance!

Regards,
Tommy

 

[Tammy]

Hi Tommy,

The tuition and education deduction (line 323) is generally meant for courses taken from a post-secondary institution. There are specific rules that must be met and REIN does not qualify under the rules.

The professional dues deduction (line 212) is generally meant for dues and fees you pay to maintain your employment. Things like union dues and professional membership fees are what you deduct here. Since REIN membership is probably not necessary as part of your employment it would not be deductible on line 212.

Deducting your REIN membership as a rental expense is more of a grey area issue. The general rule is that if the expense is reasonable and was incurred to earn rental income it is likely to be deductible. Some expenses are more obvious then others, like property taxes - it is pretty clear that you incurred the property tax expense on your rental property in order to earn rental income and if you didn`t have the property you wouldn`t have the property tax expense.

Your REIN membership is not as clear, you could have a REIN membership without owning any rental properties and you could own rental properties without having a REIN membership. The more you can show that your REIN membership is directly related to your ability to earn rental income the greater the likely-hood that CRA would allow the deduction. For example a person that goes to every REIN meeting and actively uses all the information they learn would have an easier time justifying the deduction then a REIN member that never goes to a meeting and has all their REIN CD`s collecting dust on the bookshelf.

I can`t advise you as to whether or not you should deduct your REIN membership but I do suggest that if you choose to deduct your REIN membership to make sure you have good documentation in your tax file that shows how the REIN membership is related to your ability to earn rental income.

If you choose to deduct your REIN membership on your rental statement (T776) the actual line you use to deduct the expense is less important then being able to prove that the expense is reasonable and incurred to earn rental income.

 

[llee]

QUOTE (Tammy @ Mar 6 2009, 03:01 PM) I can`t advise you as to whether or not you should deduct your REIN membership but I do suggest that if you choose to deduct your REIN membership to make sure you have good documentation in your tax file that shows how the REIN membership is related to your ability to earn rental income.

Thanks Tammy for the detailed response.

I got a similar reply from a CA in Ottawa. I asked if the real estate club membership is deductible. And here`s the resonse:

"This is more difficult to answer. You should be able to argue with CRA that these costs improve your ability to earn rental income, rather than to be able to go out and investigate and purchase properties. Again, the amount of these items should be relatively modest, which may not attract too much concern by CRA, even if audited."

Thanks,
Lucas

 

[TommyK]

QUOTE (Tammy @ Mar 6 2009, 02:01 PM) Hi Tommy,

The tuition and education deduction (line 323) is generally meant for courses taken from a post-secondary institution. There are specific rules that must be met and REIN does not qualify under the rules.

The professional dues deduction (line 212) is generally meant for dues and fees you pay to maintain your employment. Things like union dues and professional membership fees are what you deduct here. Since REIN membership is probably not necessary as part of your employment it would not be deductible on line 212.

Deducting your REIN membership as a rental expense is more of a grey area issue. The general rule is that if the expense is reasonable and was incurred to earn rental income it is likely to be deductible. Some expenses are more obvious then others, like property taxes - it is pretty clear that you incurred the property tax expense on your rental property in order to earn rental income and if you didn`t have the property you wouldn`t have the property tax expense.

Your REIN membership is not as clear, you could have a REIN membership without owning any rental properties and you could own rental properties without having a REIN membership. The more you can show that your REIN membership is directly related to your ability to earn rental income the greater the likely-hood that CRA would allow the deduction. For example a person that goes to every REIN meeting and actively uses all the information they learn would have an easier time justifying the deduction then a REIN member that never goes to a meeting and has all their REIN CD`s collecting dust on the bookshelf.

I can`t advise you as to whether or not you should deduct your REIN membership but I do suggest that if you choose to deduct your REIN membership to make sure you have good documentation in your tax file that shows how the REIN membership is related to your ability to earn rental income.

If you choose to deduct your REIN membership on your rental statement (T776) the actual line you use to deduct the expense is less important then being able to prove that the expense is reasonable and incurred to earn rental income.

I do go to most of the meetings here in Edmonton. I keep all my booklets and handouts. I guess these are some of my proofs.

Thank you so much for answering the question.
Tommy

 

[ZuzanaHaska]

Hi,

we have first hand experience with this. We were audited in year 2006 and 2007 and REIN fees, Calgary Apartment Association fees were deemed non eligible for the deduction from Rental Income. Our accountant fought all the way to the Appeal board, but decision stands. We were told that these fees are deductible from Business income only.

There is very little expenses that can be claimed under Rental Income. They denied of our all office expenses - only paper and pencils were allowed. They even strike out the cell phone expenses.
So you may claim these fees as expense, but if you are audited, you will not able to claim them.

Our Accountant suggested that we form and incorporate our own Management company. This way Management company claims all these expenses under Business Income. Then management fees is charged for each of the properties. This is legitimate charge that can be deducted from the Rental income.

Talk to your Accountant and be aware of these rules.

Zuzana Haska
REIN Gold member

 

[TommyK]

QUOTE (ZuzanaHaska @ Mar 7 2009, 10:34 AM) Hi, we have first hand experience with this. We were audited in year 2006 and 2007 and REIN fees, Calgary Apartment Association fees were deemed non eligible for the deduction from Rental Income. Our accountant fought all the way to the Appeal board, but decision stands. We were told that these fees are deductible from Business income only.

There is very little expenses that can be claimed under Rental Income. They denied of our all office expenses - only paper and pencils were allowed. They even strike out the cell phone expenses.
So you may claim these fees as expense, but if you are audited, you will not able to claim them.

Our Accountant suggested that we form and incorporate our own Management company. This way Management company claims all these expenses under Business Income. Then management fees is charged for each of the properties. This is legitimate charge that can be deducted from the Rental income.

Talk to your Accountant and be aware of these rules.

Zuzana Haska
REIN Gold member

Hi Zuzana,

Thank you for sharing your experience with CRA. So basically you can`t deduct any REIN membership fee.

I read somewhere that rental income is not the same as business income, as it is a passive form of income.

Can the loss of rental income offset other income? (self-employed business income can).

I can see how forming a management company would work; but realistically, one really should have more than 10 properties (and generate a substantial rental income) in order for this to make sense.

Ok, this means that I have to get more properties!!! lol

 

[realfortin]

Hi Zuzana,

How many properties did you own at the time? I think the rules are different if you own one than if you own 2 or more

RF

 

[ZuzanaHaska]

QUOTE (realfortin @ Mar 7 2009, 09:31 PM) Hi Zuzana,

How many properties did you own at the time? I think the rules are different if you own one than if you own 2 or more

RF

We managed 28 doors with rental income in excess of $250 K a year. This is mu full time job for over 3 years.
Zuzana

 

[Eric Peters]

Wow guys - Are you in a business or not?
Your expenses (all of them with only very specific exemtions) are deductible against business income - even if that creates a loss. Don`t try to claim it where it doesn`t belong. It is not a direct expense against rent, but it is a legitimate business expense. I would fire any accountant that can`t quickly figure out how to properly claim it.
Firstly, this isn`t something you report simply on your personal return as rental income/expense. It is a business and should be reported as such. The business entails more than making a mortgage payment and collecting rent.
Personally, I like top work in a corporate structure, but that is not required to make this claim and defend it successfully.
By the way - this applies if you have no properties or a thousand properties. Just don`t claim an expense for many years and show no evidence of actually building your business.

 

[llee]

QUOTE (EricPeters @ Mar 9 2009, 07:46 PM) Firstly, this isn`t something you report simply on your personal return as rental income/expense. It is a business and should be reported as such. The business entails more than making a mortgage payment and collecting rent.

By definition, according to CRA`s webpage:

"You are earning `rental income` from property if you rent space and provide basic services only. Basic services include heat, light, parking, and laundry facilities. If you provide additional services to tenants, such as cleaning, security, and meals, you may be carrying on a business. The more services you provide, the greater the chance that your rental operation is a `business`."

For some REIN members with small rental operation, but want to deduct REIN membership expense, should they use, "T2125, Statement of Business or Professional Activities", instead of "T776, Statement of Real Estate Rentals"?

 

[RArora]

QUOTE (llee @ Mar 9 2009, 08:15 PM) By definition, according to CRA`s webpage:

"You are earning `rental income` from property if you rent space and provide basic services only. Basic services include heat, light, parking, and laundry facilities. If you provide additional services to tenants, such as cleaning, security, and meals, you may be carrying on a business. The more services you provide, the greater the chance that your rental operation is a `business`."

For some REIN members with small rental operation, but want to deduct REIN membership expense, should they use, "T2125, Statement of Business or Professional Activities", instead of "T776, Statement of Real Estate Rentals"?

I thought there was a line which said `membership dues etc` since REIN is a membership I put it there...