Owning a stockpile of rental properties sounds glamorous. The daytime property traders seem to have it all figured out, collecting rents, making money, building equity. Then in the dark, in the wee hours before the deadline, behind the flash and glamour, is the tax return that every investor has to face, every year, it’s a price to pay to live the glory, and the difference between profit and loss.

Like anything in life, to get good at it, it takes time and experience, some hard work and patience in research and learning. The Canada Revenue Agency (CRA) publishes an informative and well written guide that explains in plain language the do’s and don’ts of expenses that can be claimed on the tax return in Chapter 3. Download the guide, read it, then read it again, and then make highlights of the explanations and examples that are similar to your scenario, and apply the instructions.

The guide can be found here.

Hopefully you’ve been keeping receipts of all the transactions over the year in one place, traditionalists use a paper file of printed hard copies, or the modern approach would be to have things kept electronically. Tabulating the expenses in to a spreadsheet will be critical for organizing and doing the math, it’s recommended to take advantage of software like Excel that will do the math for you as long as you enter things correctly.

If you’re starting with a pile of receipts, or scrambling to piece together receipts and history of transactions from credit card and bank statements, start by laying out your plan and categorizing all transactions in to sections (or piles) in the same way the tax return form lists them. Here is the list of categories:

Exterior-lr

Keep it honest. The categories of allowable expenses are well worded and straight forward, so it should be easy to assess if an expense fits in to one of the categories. Make sure that the expenses truly relate to running the rental business. Enter each receipt amount in to rows or columns and let your software add them up for you.

Take your time, and try to do it all at once with a deadline, one full Saturday should be enough for the starting investor with one or two properties. Learning on your own, entering those receipts and thinking through how the tax system works is an important building block for growing as an investor and crossing in to running a fine tuned profitable rental business.