Canada's Condominium Magazine

Tax rules to know when renting your condo (or house) to family and friends

Renting to friends or relatives can be mutually beneficial. You have the income coming every month from a trustworthy source, and you are helping someone close to you. It’s a win-win situation. Except — don’t forget Revenue Canada. You may lose some deductions.

Some choose to rent out vacation homes to their children when they go off to college. Others may have seasonal properties that they rent out to friends or family when they are away. Regardless of your particular situation, there are tax rules of which you should be aware before you proceed.

 

Be sure to check with Revenue Canada for all tax implications when renting an condominium you own to friends or family.

 

Tax Deductions Forfeit?

When renting to family members, you may not be eligible for tax deductions typically allotted for rental properties due to costs associated with repairs and maintenance.

Regardless of the income garnered, which still needs to be claimed on your taxes, your property may not be eligible for tax credits if it and the rental agreement do not meet certain criteria.

 

Renting your condo to friends or family can mitigate risks in terms of getting paid or concerns over damage. There are, however, tax implications.

 

Fair Market Rent

When renting to anyone, including friends and relatives, they must be charged at fair market rent. Gifts, most discounts, etc. will result in a net rent that is below market value, thus disqualifying the property as a rental. You may be required to provide proof that the rent is paid at fair market value in order to claim any tax credits.

That is not to say that charging them slightly lower rent is prohibited. However, renting to them for substantially less than is typical could be problematic.

 

Discounts may be allowed off “fair market value” but have to be justified.

 

You can lower the rent based on good credit, and outstanding rental history. A discount of 10 – 20 percent is generally allowed, but 10 percent is much easier to justify. Furthermore, any discount you provide them should be one that you would grant any other tenant under similar circumstances, or favouritism may constitute the discount as a gift.

The home must also be used as a primary residence. Using the property as a vacation home, summer home, etc. may disqualify the property as a rental.

 

Renting cottages to family or friends have different tax implications.

 

If you rent your condo to a relative who uses it temporarily, then the condo would be considered your second home rather than a rental property. If it is your second home or a vacation home that you are renting to your relatives, then it is qualified as your personal use since your family is inhabiting the property.

 

Know all the tax/income/deduction implications before renting to family or friends.

 

To learn more about tax credits available for rental properties and the requirements for claiming them, research tax codes from Canada Revenue Agency and Property Rental Expenses.

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