Apr 22, 2016
Empty nesters: Why not rent out that room?
By Dale Jackson
ANALYSIS: Many parents experience a sense of emotional loss when the kids leave home. Why not turn that into financial gain?
Renting out a room can bring in some much needed income, but there are tax implications and one potential landmine.
That landmine centres on the principal residence status of a home. Most houses in Canada have gone up in value and if it is a principal residence those gains are not taxed when it is sold. If it is a secondary residence, like a cottage, half of those gains are subject to taxation.
Tax experts, WaterStreet Group says a home’s principal residence status could be compromised if too much of the property is rented out. They say renting out more than half could raise a red flag with the Canada Revenue Agency (CRA).
They also warn against structural changes to the property to accommodate a rental unit, or claiming depreciation on the property.
Rental income must be reported to the CRA, but deductions can significantly lower your tax bill. A portion of mortgage interest, property taxes, insurance and utilities can be written off. That portion is normally based on how much of the house is being used for rental purposes.
Homeowners can also write off the cost of advertising to fill the unit and administrative expenses.
