Tracking Rental Income and Expenses for Your T776
The original version of this post was written for a US audience. We rewrote it for Ontario, kept only facts we could source, and linked each one. Tax facts come from the CRA's rental income guide (T4036). This is general information, not legal or tax advice.
Good rental books aren't about accounting skill. They're about recording each amount once, against the right property, as it happens. Here's how to set yours up so tax time is easy, using the CRA's rental income guide as the reference.
The form: T776
If you have a rental operation and report rental income or a loss, you report it on Form T776, the Statement of Real Estate Rentals. (Source) Your books should make each line of it easy to fill in.
Record everything against a property
Tag every amount, in or out, to the property (and unit) it belongs to. Then you can see how each one is doing, and you're ready if you sell one or the CRA asks a question.
Current or capital?
The CRA separates two kinds of costs (source):
- Current expenses recur and give a short-term benefit, such as painting the outside of a wooden house.
- Capital expenses give a benefit that usually lasts several years, such as putting vinyl siding on that house.
Record them in different categories, because they're treated differently. Capital costs are claimed through capital cost allowance (CCA), and you can't use CCA to create or increase a rental loss. (Source)
Use categories that match the form
Typical rental categories include mortgage interest, property taxes, insurance, maintenance and repairs, utilities, advertising, legal and accounting fees, management fees, travel to collect rent or supervise repairs, and office expenses. Each is described in the guide.
Accrual, usually
In most cases, rental income is calculated using the accrual method. You can use the cash method only if your net rental income or loss would be almost the same. (Source)
Keep records for six years
Generally, you must keep your records for six years from the end of the tax year they relate to. (Source) Attach the receipt to each expense when you enter it, so you never have to find it later.
Let the routine run
Set up recurring items once (rent, the mortgage, insurance, property tax) so they're logged on schedule. Then you only enter the one-offs. At year-end, an income statement by property is a report, not a project.
This is general information, not tax advice. For your situation, talk to an accountant.