Year-End Checklist for Canadian Landlords and Their Accountants

Most of the stress in a landlord's tax season comes from work that could have been done in November. Receipts are scattered across inboxes, a repair invoice can't be matched to a unit, the mortgage interest figure is missing, and the accountant sends back a list of questions in March. This checklist splits the job into three parts: decisions that depend on the calendar, reconciliation you can do any time in January, and the package you hand to your accountant.

For most individual landlords, rental income and expenses are reported on Form T776, Statement of Real Estate Rentals, filed with the personal return. Corporations, trusts and some partnerships file differently, so confirm with your accountant which forms apply to each property before you start sorting.

Part 1: Before December 31

A few items depend on which tax year they land in. These are worth a conversation with your accountant before the year closes rather than after.

• Prepaid expenses. CRA's guide says that, under the accrual method most landlords use, a prepaid expense such as a multi-year insurance premium is claimed in the year or years you receive the benefit, not all at once when you pay it.
• Landscaping. CRA allows landscaping costs to be deducted only in the year you paid them, even if you otherwise use the accrual method. If a landscaping job straddles the year-end, know which side of December 31 the payment falls on.
• Big purchases and improvements. Capital items (a new furnace, appliances, a roof replacement that improves rather than restores) are generally depreciated through capital cost allowance (CCA) rather than deducted in full. First-year CCA rules have changed several times in recent years, so ask your accountant how the acquisition date affects the claim before you time a purchase around tax.
• Outstanding rent and subsidy payments. Chase arrears and any missing agency payments now. A clean year-end balance per tenant makes the income side of the return much simpler.
• Repairs that might be capital. If a large job is underway, ask the contractor to itemize the invoice so restoration work and upgrades are on separate lines. See our guide to current vs capital expenses.

Part 2: January reconciliation

Income

1. For each unit, compare rent charged with rent received for each month of the year. Note any months of vacancy and any rent that was written off.
2. If a housing agency paid part of the rent, reconcile its payments separately from the tenant's portion. Agency remittances often arrive as one deposit covering several units.
3. Separate short-term rental income from long-term rent. On the current T776, gross rents from short-term rentals have their own line (8140), apart from gross rents on line 8141.
4. Identify other rental income, such as rent paid in kind or through services and lease premiums, which CRA reports on line 8230, Other income.
5. Security deposits you hold are generally not income while you hold them. If you kept part of a deposit at move-out to cover rent or damage, flag it for your accountant so it's treated correctly.

Expenses

Sort every expense into the T776 categories: advertising, insurance, interest and bank charges, office, professional fees, management and administration, repairs and maintenance, salaries, property taxes, travel, utilities, motor vehicle and other. Our line-by-line T776 guide explains what belongs where. While you sort, check three things:

• Every expense has a receipt or invoice you could produce if asked.
• Every expense is assigned to the right property (and unit, if you track by unit). Mixed invoices from one contractor covering two buildings are the usual problem.
• Personal items are out. Your own labour is not deductible, and neither are penalties on a notice of assessment.

Mortgage interest

Only the interest portion of mortgage payments is deductible, not principal. Ask each lender for the annual mortgage statement that shows interest paid for the calendar year, and keep it with your tax file. If you refinanced and used some of the money for something other than the rental, tell your accountant: interest is deductible when the borrowed money was used to buy or improve the rental property. Fees to obtain a mortgage, such as application, appraisal and legal fees, are deducted over five years under CRA's rules, regardless of the loan term.

Co-owners

If the property is co-owned, each co-owner generally reports their share on their own T776 and lists the other co-owners in Part 2 of the form. Prepare a short schedule showing each owner's percentage, the income and expenses allocated to them, and any expense one owner paid personally. CRA's guidance distinguishes co-ownership from a partnership, and the reporting is different, so make sure your accountant knows which one you have.

Payroll

If you paid a superintendent or caretaker as an employee, their wages go on line 9060, and you'll have payroll slips to issue early in the new year. Payments to independent contractors are not salaries; they belong under repairs and maintenance or the relevant expense line.

Part 3: The accountant package

Accountants work fastest when everything arrives once, in a predictable order. A good package for each property or ownership entity contains:

Deadlines worth putting in the calendar

• December 31: last day for payments that need to fall in this tax year (for example, landscaping).
• Mid-January: request annual mortgage statements and any missing receipts from vendors.
• February: payroll slips if you had employees; send the accountant package.
• April 30: the filing and payment deadline for most individual returns. Check CRA's current dates for your situation, especially if you or a co-owner is self-employed or the property is held in a corporation.

Making next year easier

The landlords who have the easiest Aprils categorize expenses when they're paid, not at year-end. In Propvara, expenses are categorized as they're recorded, and the operating statement already groups them by T776 line, with mortgage interest separated from principal. Bills and letters can be captured from a photo or PDF, and your accountant can get a read-only login to the statements and the receipts behind them. A one-download year-end accountant pack is coming soon.