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  • Rental Income

    Hello All-
    What counts as a legitimate expense in determining income from a rental property? Pretend the rental gross is 30,000 and the total mortgage paid is 25,000 (including interest and principle) plus insurance .... How does this work? Is the principle just deferred earnings in an investment property?

  • #2
    A quick search of canlii resulted in the case: Appu v. Appu. The judge in that case considered expenses necessary to maintain a stream of income.

    It could also be a crapshoot depending on the judge. In the Appu case the judge determined 10% of the rental income is used for cs purposes but if your only income is from rent then it could be higher.


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    • #3
      The principal portion of mortgage is NOT an expense, it is an equity item, period. Where it’s a bit more grey is “repairs”, whether they are actually current (maintenance expense) or capital/equity (renovation). I would refer you to CRA rental income information for guidance.

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      • #4
        When you say its not an expense but an equity line item... how does that play into the calculation of income for support purposes ? That differs from the case law above... at least my interpretation. For example, 2,000 a month is being attributed towards equity... isn't that just deferred earnings that will be realized in 5-10 years post child support? Just trying to understand different sides to this issue... thank you!

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        • #5
          My situation is the other way around. My rental property is losing money every month. Can I use the lost money to reduce my child support payment from employment?

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          • #6
            Originally posted by rvalentines View Post
            My situation is the other way around. My rental property is losing money every month. Can I use the lost money to reduce my child support payment from employment?

            No.

            Sell the property if its that bad.


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            • #7
              Originally posted by arbortrail22 View Post
              When you say its not an expense but an equity line item... how does that play into the calculation of income for support purposes ?
              A) You earn $30,000. You buy a diamond ring for $20,000.
              B) You earn $30,000. You throw a $20,000 party.
              C) You earn $30,000. You put $20,000 in a box and bury it in your garden.
              D) You earn $30,000. You pay off $20,000 of your mortgage.
              E) You earn $30,000. You pay off $20,000 in credit card debt
              F) You earn $30,000. You buy $20,000 of bitcoin.

              In all 6 scenarios, your income for child support purposes is $30,000. In all 6 scenarios, you have $10,000 left.

              In A/B you kinda wasted the $20k
              In C/D/E/F you still have that $20k, just in a slightly different format.

              For example, 2,000 a month is being attributed towards equity... isn't that just deferred earnings that will be realized in 5-10 years post child support?
              How would it be deferred earnings? You made money (your income), and you invested it in a mortgage reduction.

              Now, I'm not sure what the case law is, but the INTEREST on your mortgage would be a legimitate income deduction, as well as property taxes and repairs/maintenance. Paying off equity though is changing your money from cash to a different format. It shouldn't have any effect on child support.

              I could be wrong, but that is only because judges often don't get math.

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              • #8
                Perfect explanation. Thank you very much!

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                • #9
                  Hi- Does anyone know if you have to pay HST on a property purchased only for investment/rental income? Not a new property... the articles online have my head spinning!

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                  • #10
                    Yes if the title is being transferred to you. Its considered real property and by the title being transferred has tax implications. Doesnt matter what you plan to do with it.

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                    • #11
                      Originally posted by arbortrail22 View Post
                      Hi- Does anyone know if you have to pay HST on a property purchased only for investment/rental income? Not a new property... the articles online have my head spinning!
                      No, you do not pay HST on the purchase of a used residential/income property.

                      HST is attracted to certain types of properties - commercial use, vacant land intended for development, etc. - but used residential, no.
                      Start a discussion, not a fire. Post with kindness.

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