How is Rental Income Taxed in Canada?
The real estate market in Toronto and the suburbs has been booming over the last several years because of the favorable economic conditions and the low interest rates. Individuals have invested in rental properties of all sorts. Rental income is generated when you rent a property you own. Rental income could be generated from a house, apartment, or a commercial building. The rental property may be acquired in your personal name, in a partnership, in a trust or a corporation. Depending on who owns the property, the tax consequences are very different.
Rental Income Taxed– personal name
If the rental property is owned in your personal name, this income is taxed on your T1 personal income tax return. The tax you pay will depend on your marginal tax rate.
Rental Income Taxed – partnership
The partnership’s rental income is attributed to the partners, who must include their respective share of it in their personal income.
Rental Income Taxed – corporation
If a renal property is held in a corporation there are multiple factors that have to be considered in determining the tax rate. The General Corporate Rate is 38% Federal and 11.50% Provincial (Ontario). Therefore we have a combined General Corporate Rate of 49.50%. However, not all corporations pay this rate because there are tax breaks offered by the federal and provincial governments. The federal government offers a 10% abatement which brings the tax rate down by 10% to 28%. We also have the Small Business Deduction of 17% and the General rate reduction of 13%. To receive preferred tax rates, the corporation has to meet certain conditions.