One Spouse or the Other Claiming Rental Properties On Income Tax

[selewis]

okay... i seem to be getting different answers to this question depending on who i ask. so i thought it might be worth tossing it up here...

we have claimed rental income (and expenses) on one spouse`s tax return up till now. if we purchased a new property last year (or more), can we choose to claim that new property on the other spouse`s return this year?

we are not switching back and forth every year. the ones that have been on the one spouse`s return for the last few years will remain on that return this year and beyond. the question is about any new properties purchased last year. can we start with a different spouse claiming the new property, as long as we remain consistent as we go forward?

 

[navaz]

It is a complex issue and that is why you are getting confusing answers. The answers depend on the following questions



[list type=decimal][*]What is your current income and your spouses[*]What will your and your spouses income when you sell the property[*]How much do you expect to make or lose in each of the years that you own the propertyHow much do you expect to make when you sell the propertyWhat will your tax brackets be in each of those yearsWhich spouse will pay the lowest tax in each of the years?[/list type=decimal]

My experience is most clients answer the question -who knows? and accordingly the accountants answer- you are right so it makes no difference unless you spend the time to calculate the taxes based on above estimates in each of the years

 

[Conrad5]

Hi Navaz,
Can a spouse not on title claim income and capital gain from the property that the other spouse is the only one on title and mortgage?

 

[selewis]

QUOTE (navaz @ Mar 28 2009, 08:28 AM) It is a complex issue and that is why you are getting confusing answers. The answers depend on the following questions



[list type=decimal][*]What is your current income and your spouses[*]What will your and your spouses income when you sell the property[*]How much do you expect to make or lose in each of the years that you own the propertyHow much do you expect to make when you sell the propertyWhat will your tax brackets be in each of those yearsWhich spouse will pay the lowest tax in each of the years?[/list type=decimal]

My experience is most clients answer the question -who knows? and accordingly the accountants answer- you are right so it makes no difference unless you spend the time to calculate the taxes based on above estimates in each of the years


your answer is about what`s best for our family from a tax benefit perspective. you have not said anything about how CRA views this. i guess part of my question is, does CRA have any particular perspective on it that could raise any red flags with them?

also: i assume, though, as i stated in my original question, that i can`t/shoudln`t switch the properties back and forth bewteen spouses every year depending on who would get the best tax benefit that year. so if i start one of our new properties (or more) with the other spouse who up to this point has not claimed any rental properties, that won`t cause any curfuffle at CRA?

 

[selewis]

another follow up question...

the income tax program we use gives the option of choosing "sole proprietorship" or "co-ownership" of the rental properties. i assume we are co-owners of the properties. both our names are on title and on mortgage. if we choose "co-ownership" does this force a 50-50 split from CRA`s perspective? or can we still split 99-1? or 75-25? or 100-0? or whatever we decide, as long as we don`t switch it around every year?

 

[jeffjas]

QUOTE (selewis @ Mar 28 2009, 10:49 AM) another follow up question...

the income tax program we use gives the option of choosing "sole proprietorship" or "co-ownership" of the rental properties. i assume we are co-owners of the properties. both our names are on title and on mortgage. if we choose "co-ownership" does this force a 50-50 split from CRA`s perspective? or can we still split 99-1? or 75-25? or 100-0? or whatever we decide, as long as we don`t switch it around every year?

You can claim "anything" you want on your taxes. Its an audit or reassessment that you have to worry about and this is pretty cut and dry.

If you and your spouse is on title and mortgage you will have to report or split the income or loss between the both of you. You can argue about the percentage if you want but CRA will usually go 50/50 to save time and arguement.

I was audited and reported 100% of the rental income but was reassessed to 50/50 after they viewed the mortgage and title documents.

 

[navaz]

Once you decide who is the beneficial owner (title is not as important) of a property- and what percentage that person owns (does not have to be 50-50), the only way to switch them is for the person to sell the property

So lets say you decide you own 50% and your wife owns 50%. Now you have to report based on your ownership. You can only switch it around if you sell the property- so if you want to change it say to 25-75, you would have to sell your 25% to your wife, creating a capital gain. But then moves the true test- was the property actually sold -so my bbest advise- keep it simple

 

[selewis]

QUOTE (navaz @ Mar 29 2009, 09:52 AM) Once you decide who is the beneficial owner (title is not as important) of a property- and what percentage that person owns (does not have to be 50-50), the only way to switch them is for the person to sell the property

So lets say you decide you own 50% and your wife owns 50%. Now you have to report based on your ownership. You can only switch it around if you sell the property- so if you want to change it say to 25-75, you would have to sell your 25% to your wife, creating a capital gain. But then moves the true test- was the property actually sold -so my bbest advise- keep it simple

1. if both names are on title/mortgage, should i be choosing "co-owners" or is "sole proprietorship" acceptable if we are claiming all income on one spouse?

2. if i go with co-owners, do i need to choose a percentage split between spouses? or can i leave the percentage split empty, and assume 100% for one spouse, even if "co-owners" is selceted?
(does that question make sense?)

 

[Thomas Beyer]

QUOTE (selewis @ Mar 27 2009, 10:11 PM) ...

we have claimed rental income (and expenses) on one spouse`s tax return up till now. ...

why is there taxable income with a 4% depreciation (CCA aka Capital Cost allowance) ??

if taxable income you set the split ONCE up front .. or if later there is a "deemed sale" with possible taxes payable if transfer value has changed !

 

[selewis]

QUOTE (thomasbeyer2000 @ Mar 29 2009, 07:02 PM) why is there taxable income with a 4% depreciation (CCA aka Capital Cost allowance) ??

if taxable income you set the split ONCE up front .. or if later there is a "deemed sale" with possible taxes payable if transfer value has changed !

in answer to the first question, we have never used CCA on the buildings yet, because we have always been able to get all our income taxes back every year so far through other deductions that we have (e.g. clergy residence deduction, which is a biggie), so we have not yet needed to use the benefit of CCA on the building.

regarding the second comment... so if we set the split as 100/0 or 75/25 or or 50/50 or whatever... as long as we keep it the same from then on for that particular property, red flags should not be raised(?). and the next property could be set differently right from the start (i.e. property #1 could be 100/0 and property #2 could be 50/50 and #3 could be 75/25? set each one at the beginning and then don`t change them...?).