Rent-To-Own rental payments tax-deductible by tenant ?

johnkord

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May 6, 2008
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#1
I have recently had a question posed to me by my tenants living in a rent-to-own house (semi-detached):
Can they deduct the rental payments against their business income for income tax purposes ?
My guess is that the base lease payment portion (i.e. the full lease payment minus the monthly credit to lessee) could be used toward a deduction against their business income tax, up to the maximum allowed by CRA. So, say they used 1 room (maybe 15% of the full house area) as an office for the business, and say their base lease payment was $1,000 per month, they could deduct $150 / month from their business income.

I would sincerely appreciate any comments. (I am not asking for professional tax advice, only your opinions, hopefully based on real life examples.) John
 

MikeMcC874

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#2
Not an expert but it seems to me that would be double counting it.

They are already writing 100% off for the rent deduction. They can`t write it off again.

Mike
 

jseib

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Aug 8, 2009
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#3
My rule of thumb is to never give business or tax advice to tenants.. Never seems worth it, if I`m right I get a "thanks" if someone else says I`m wrong then they get upset.. Either way Im not better off and the risk isn`t worth the reward.

That said in my opinion I would say Yes they could deduct a portion of the rental payment, if they have an actual business, but I would only feel comfortable doing so if the rent and option payments were separated on paper. Mostly because I would hate, as a tenant, to have to sit down and explain to a CRA auditor how the whole rent to own thing worked.
 

johnkord

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#4
Thanks to both of you for your answers. Mike, I have never rented, so I am not sure how the rental payment deduction is applied at income tax time. Is it a full deduction against income, making the net taxable income less than it would otherwise be ? Or is it in the form of a credit, that would be of use only in specific circumstances, and up to a maximum limit ? ( My tax accountant is on vacation, and I can`t reach him for an answer.) John
 

jseib

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#5
Isn`t it a "credit" rather then a deduction and only applies for those with under $40,000 income?

I really don`t know
going on second hand information here
 

Dan_Eisenhauer

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Aug 31, 2007
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#6
That question should be answered by the Tenant` own tax accountant. I have an opinion, but it is not a expert one.

When using a portion of ones home, whether owned or rented, for business, that portion of the premises used for that business can be used as tax deductible expenses. You can use area as a measurement, or the number of rooms, so long as it is "reasonable".
 

MikeMcC874

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#7
My understanding may be dated but back in the day when I was a renter, there was a tax deduction for renters (may have been a credit). It may have had an upper income limit to claim it and it may have been an Ontario thing.

Now if my understanding is correct and your rent is for example $9000 a year. You get to take that credit based on $9000 (or the max if there is one).

If you then write off $1350 against your business income, that seems like you are double dipping and might be an issue.

Now if you were to only use $7650 for the credit and then $1350 for your business that might be OK.

Just my take and I am not a tax expert by any means. Talk to a real accountant.

Mike
 

markl

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Oct 1, 2007
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#8
I would refrain from providing tax advise and put it back to them to get the advise from their accountant and if they need a good accountant put them in touch with Mr George Dube and I am sure he will be able to answer all of their questions and more.

Regards,