Are My Property Repairs Tax Deductible?

By Gabor Palos – D&H Group LLP, Chartered Accountants

Owners of residential rental properties often spend significant money on the maintenance and improvement of their investments. And they often wonder whether they can deduct these expenditures on their income tax returns.

The answer is: it depends. The tax rule says that the cost of maintenance is deductible, but capital expenditures are not. How to tell the difference? Well, the difference is not always obvious and for that reason this area is the subject of frequent controversy between taxpayers and the Canada Revenue Agency (CRA).

Minor repairs and routine maintenance are considered “current expenses” and are deductible when incurred. A current expense simply restores the property to its original state, and has little or no long- term effect. These expenses usually recur after a relatively short period of time.

On the other hand, renovations that extend the useful life of the property and improve it beyond its original condition are considered “capital expenditures” and are not deductible when they are incurred. Instead, these expenditures may be deducted in small portions over time by claiming “capital cost allowance” (tax depreciation).

CRA provides some examples of current and capital expenditures in its interpretation bulletin: Painting the interior or exterior walls, repairing wooden steps, or replacing an old floor or a roof (unless the new floor or roof is clearly of better quality and greater durability) are all current expenses. Read more

How Does the Bank Determine Your Maximum Affordability?

Video #2 – Gross Debt Service Ratio and Total Debt Service Ratio

It’s a good idea to understand how the bank/lender will calculate the maximum amount they will loan to you for a mortgage. The two calculations a bank/lender calculates are: your gross debt service ratio (GDS) and your total debt service ratio (TDS). To see how both calculations work, watch the video and read more below.


Gross Debt Service Ratio (GDS)

To calculate your GDS, lenders try to figure out how much you would be paying each month to own a particular property. First, the lender will estimate your monthly mortgage payment, property taxes, and utilities. The lender will then add that up and divide it by your gross monthly income. If the answer equals less than 32 per cent (industry standard), the lender can feel confident in your ability to pay your monthly housing costs.

Total Debt Service Ratio (TDS)

To calculate your TDS, the lender will take the same GDS calculation but add in any other monthly payments you might have to make, including loans or the minimums on any credit card debt. The lender adds together your monthly mortgage payment, property taxes, utilities and debts, and divides the total by your gross monthly income. If the answer equals less than 40 per cent (industry standard), the lender will know you have the money to make all of your monthly payments and you will be on track with getting approved for a mortgage.

What happens If I’m Over the Industry Standard?

If either of your answers go over than the industry standards, you may want to save more for your down payment and/or pay off some existing debt before buying. However, the 32% GDS and 40% TDS standards are guidelines, not rules. If you have a high credit score or some valuable assets, you may still qualify for a mortgage, even if your GDS and TDS are slightly higher than the industry standards.

RRSP Home Buyer Plan Information

Video #3 – Using Your RRSP’s for Your Down Payment.

One great source of funding for your mortgage down payment is a Registered Retirement Savings Plan (RRSP). The Canadian Government’s Home Buyers’ Plan (HBP) allows you to borrow up to $25,000.00 from your RRSP for a down payment, tax-free. However, since the HBP is considered a loan, it must be repaid within 15 years.

To learn more about the eligibility requirements and repayment term, watch the video below.

First-Time Homebuyer Eligibility

In order to be eligible as a first-time homebuyer, you must meet the following criteria:

  • Not owned a home within the previous four years
  • Sign a written agreement to buy a home
  • Intend to live in the home within one year of purchase
  • If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due
  • You must make the withdrawl from your RRSP within 30 days of taking title of the home
  • You must buy the home before October 1st of the year after you made the withdrawal

If you are buying with a partner, each spouse needs to qualify as a first-time homebuyer, in order for you both to withdraw from your individual RRSPs. For example, if you have owned a home in the last four years but your spouse has not, then your spouse would be able to withdraw money from their RRSP under the Home Buyers’ Plan, provided you and your spouse have not been living together in the home you owned. Read more

Fixed Rates Compared to Variable Rates

Video #4 – Should You Select a Fixed or a Variable Rate When You Obtain Your Own Mortgage?

One of the first decisions homebuyers and mortgage shoppers face is whether to select a fixed rate or variable rate mortgage.

With a fixed rate mortgage, the mortgage rate and payment you make each month will stay constant for the term of your mortgage. With a variable rate mortgage, however, the mortgage rate will change with the prime lending rate as set by your lender. A variable rate will be quoted as Prime +/- a specified amount, such a Prime – 0.45%. Though the prime lending rate may fluctuate, the relationship to prime will stay constant over your term. This video explains the 2 options in more detail.

Comparing Fixed and Variable Mortgage Rates

You can think of the difference, or spread, between variable and fixed mortgage rates as the price of insurance that lending rates will not increase, more or less. When interest rates are low and are not expected to fall further, it is generally advised to lock in a fixed rate, as variables rates will, at best, stay the same, or increase. On the other hand, if you expect interest rates to fall with some certainty, then a variable rate is preferred, as you will be able to absorb the benefit of paying lower interest. Similarly, if the difference between the variable rate and the fixed rate is significant, it may not be worth paying the premium for the stability protection of a fixed rate. Read more

What Is Mortgage Default Insurance? Do I need It?

Video #5 – Do I Need Mortgage Default Insurance When I Transfer The Property Into My Name?

Mortgage default insurance, commonly referred to as Canadian Mortgage and Housing Corporation (CMHC) insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders if a homeowner defaults on their mortgage. To understand how it is calculated and paid for, watch the video below.

Although mortgage default insurance costs homebuyers 1.75% – 2.75%1 of their mortgage amount, it is actually beneficial to the buyer market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by default insurance, as the risk of default is spread across multiple homebuyers.

Who Offers Mortgage Default Insurance?

In Canada, mortgage default insurance is provided by CMHC (Canada  Mortgage and Housing Corporation), Genworth Financial and Canada Guaranty  Mortgage Insurance.
canada-guaranty-logogen financial

cmhc logo

How Do You Pay Mortgage Default Insurance?

Mortgage default insurance is financed through your mortgage. Unlike closing costs such as lawyer fees and land transfer tax, it does not require a lump sum cash outlay at the time you purchase your home. Your insurance premium is added to the value of your mortgage, and your monthly payment increases accordingly. Continuing with the above example, the revised mortgage amount would be $260,000 + $5,200 = $265,200. Read more

Land Transfer Tax – What Is It and Does It Apply to Me?

Video #6 – Land Transfer Tax (LTT) is a full tax everyone has to pay unless you are a first time home buyer. Land Transfer Tax is charged by the Land Title office when you make changes to a property’s title (ex. you are putting the property title from someone else’s name into your name). This is not the same as property tax and is not a part of your property tax payments.

This is often overlooked when considering the total cost of purchasing a home. All provinces have a land transfer tax, except Alberta and Saskatchewan, who instead levy a much smaller transfer fee. To see how land transfer tax is calculated, watch the video below. To help offset the cost of land transfer tax, British Columbia offers land transfer tax rebates for first-time home buyers.

Calculating British Columbia Land Transfer Tax

The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit. The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000.

For example, if the fair market value of a property is $250,000, the tax paid is $3,000.

PTT Calculator
Enter Property Value:
Tax on amount under $200,000:
Tax on amount over $200,000:
Total Tax:

British Columbia First-Time Homebuyer Land Transfer Tax Rebate

First-time homebuyers are eligible to receive a full land transfer tax refund on homes purchased for $425,000 or less. On homes purchased between $426,000 – $450,000, the first-time homebuyer will be eligible for a partial refund equal to [ ($450K – fair market value) / 25K ] * LTT amount.

You Can Qualify For the First-Time Homebuyer Land Transfer Tax Rebate If:

    • You are Canadian citizens or permanent residents as determined by Immigration Canada

Read more

Mortgage Payment Options Available To You

Video #7 – Payment Options For Your Own Mortgage

When you purchase a property and take on your own mortgage, how much you pay and how often you pay it depends on which mortgage payment frequency option you choose. In Canada, you can choose from five different mortgage payment options: monthly, bi-weekly, accelerated bi-weekly, weekly, or accelerated weekly. The most popular payment options are monthly, bi-weekly, and accelerated bi-weekly. To see how all three could affect your mortgage payment and repayment, watch the video below.

What are the different mortgage payment options?

  • Monthly
  • Bi-weekly
  • Accelerated Bi-weekly
  • Weekly
  • Accelerated Weekly

What is a monthly mortgage payment?

A monthly mortgage payment is when your mortgage payment is withdrawn from your bank account on the same day of every month (i.e. on the 1st). With a monthly mortgage payment, you make 12 payments per year.

What is a bi-weekly mortgage payment?

Read more

Real Estate Glossary



   Real Estate Terms 




Amortization Period The number of years it will take to pay back your mortgage loan.

Assignment Sale An Assignment Sale is when the original purchaser sells and/or transfers all the rights and obligations of the original contract between themselves and the Vendor to another party before the official completion date for the property. Title transfer for the property does not occur until the city issues the necessary permits and the unit is ready for occupancy.

Assumability Allows the buyer to take over the sellers mortgage on the property.

Building Permit A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.

Closed Mortgage A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.

Closing Costs Costs, in addition to the purchase price of a home, such as legal fees, transfer fees, and disbursements, that are payable on the closing date. Closing costs typically range from 2 to 4 percent of a home’s selling price. Read more