As a corporate business owner or manager, it’s crucial to understand how a Canadian-Controlled Private Corporation (CCPC) is taxed on rental income. You want to stay on the right side of the law and, under the Income Tax Act (ITA), you need to report all income received from renting out property. Alright, so you flip to your T2 corporate income tax return, but you don’t know what number to put down. You need to understand how each type of rental property is taxed, before you can calculate the amount that needs to be paid.

The Simplest Way To Understand How Rental Properties Are Classified

Rental properties can either be classified as active or passive. Active rental properties are those where the taxpayer is consistently involved in managing and operating the rental property; they’re providing repairs, dealing with tenants, legal proceedings, and so on. To compensate for the work involved in managing the rental property, these rental properties are taxed at a lower rate than passive rental properties.

Passive rental properties are those where the taxpayer is not actively involved in managing or operating the rental property; they’re simply collecting rent on an ongoing basis. These passive income streams are usually subject to higher tax rates than active income streams. But here’s a secret: you can lower your taxes even with passive income streams. Book a free consultation today and we’ll figure out what steps you can take to keep the most money.

You want to use your property most profitably. (Illustration by Aleksey Chizhikov from Ouch!)

How Do You Know Which Taxes Apply To You?

Under the ITA, CCPCs can deduct certain expenses related to renting out their property. This could include things like maintenance costs, utility bills, mortgage interest payments, and insurance premiums. On tax forms, all these expenses are subtracted from the taxable income of a CCPC, before calculating any liability. The number of deductions available will depend on the type of rental property and whether it is classified as active or passive income.

An important note: CCPCs may be subject to taxes other than corporate income tax when they rent out their property. For example, GST/HST may apply if the renting activity is considered a taxable supply, while provincial land transfer taxes come into play depending on where the rental property is located.

The Easiest Way Is To Get Help. Here’s Where To Look

If you’re a corporate business owner and manager trying to stay compliant with tax regulations, it’s crucial to understand how rental income is taxed specifically from a CCPC perspective.

It is always advisable to seek professional advice from a tax specialist or accountant in order to understand your specific tax obligations as a CCPC owner. This will help you avoid any penalties and be absolutely sure you are paying the correct amount of taxes on your rental income.

Here at ACM CPA, our team of experts has years of experience helping corporate business owners and managers with their rental income tax obligations. If you have any further questions, book a free consultation with our team here at ACM CPA would love to help. Contact us today.