{"id":7699,"date":"2021-11-19T11:35:02","date_gmt":"2021-11-19T16:35:02","guid":{"rendered":"https:\/\/www.effisca.com\/business-rental-income-tax-implications\/"},"modified":"2021-11-16T11:35:27","modified_gmt":"2021-11-16T16:35:27","slug":"business-rental-income-tax-implications","status":"publish","type":"post","link":"https:\/\/www.effisca.com\/en\/business-rental-income-tax-implications\/","title":{"rendered":"Business rental income: tax implications"},"content":{"rendered":"\n<p>An incorporated business that receives rental income must first determine whether it is indeed passive income or whether it is considered active income instead. The tax implications will be very different in each case.<\/p>\n\n<h2 class=\"wp-block-heading\">Is this passive or active income?<\/h2>\n\n<p>In the majority of cases, the rental income of a business will be considered passive income, unless the business has more than five full-time employees. In this case, the income you will receive will be considered as income from property (in this case, rental property).<\/p>\n\n<p>This will also be the case if your rental income is generated by services other than simple rental, such as security or cleaning services or meals or medical care offered to tenants, etc.<\/p>\n\n<p>This rental income will also be considered as active income if you decide to lease or sublet a portion of your production capacity, which would then be underutilized. It must have a business reason related to one of the main activities of the company.<\/p>\n\n<p>Furthermore, if a building is leased to a company and the latter deducts its income from the payment of rents from its active business income, the rental income will be considered as business income, even if it does not have five full-time employees.<\/p>\n\n<h2 class=\"wp-block-heading\">Rental income tax rate<\/h2>\n\n<p>Since rental income is very often taxed as passive income, a business will not qualify for the <a href=\"https:\/\/www.revenuquebec.ca\/en\/businesses\/income-tax\/corporation-income-tax-in-french-only\/corporation-income-tax-return-in-french-only\/calculation-of-the-income-tax-of-a-corporation-in-french-only\/small-business-deduction-in-french-only\/\">small business deduction<\/a> (SBD) with this type of income. The tax rate will therefore be higher, approximately 50.17% (rate in effect in Quebec in 2021) before the application of the dividend refund. After the 30.67% dividend refund (rate in effect in 2021), the effective tax rate will be 19.5%.<\/p>\n\n<p>To arrive at a net tax rate of 19.5%, the incorporated company must return all of its profits to the shareholder, which often negates the advantage of deferring taxation, which is usually sought when using an incorporated business.<\/p>\n\n<p>If an individual earns taxable income of more than $216,511, he will reach a marginal tax rate of 53.305% in Quebec in 2021. For this individual, the taxation of profits in the business is therefore done at a discount. Below this taxable income threshold, the individual level taxation of rental profits will mostly be at a lower marginal rate.<\/p>\n\n<h2 class=\"wp-block-heading\">What happens in the event of a loss?<\/h2>\n\n<p>Since the incorporated business remains a separate entity from the shareholder, rental losses will be wholly owned by the business. Thus, rental losses will not be able to reduce the shareholder&#8217;s other income as would be the case if the holding was personal. On the other hand, losses can be carried forward over time. If the business is dissolved, these losses will be forfeited.<\/p>\n\n<h2 class=\"wp-block-heading\">Capital cost allowance<\/h2>\n\n<p>Since capital cost allowance (CCA) is normally limited to net rental income, depreciation cannot create a loss for an individual. There is, however, an exception, namely if the rental of real estate is the main activity of the business.<\/p>\n\n<p>If this is the case, the company can therefore claim more depreciation and defer the payment of taxes. This tax deferral will leave more cash available to the company, allowing it to reinject that capital into other real estate projects.<\/p>\n\n<p>As for the capital gains deduction, this is not available unless it is considered an active business.<\/p>\n\n<h2 class=\"wp-block-heading\">Legal aspect<\/h2>\n\n<p>Certain legal considerations are not the responsibility of your tax specialist. We recommend that you consult a legal advisor to ensure you cover this aspect.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A business that receives rental income must determine whether it is passive or active income, which will have different tax implications.<\/p>\n","protected":false},"author":4,"featured_media":7697,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[307],"tags":[46,200,202],"class_list":["post-7699","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-tax","tag-canadian-tax","tag-rental-income-en","tag-real-estate-tax-en"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Business rental income: tax implications - Effisca<\/title>\n<meta name=\"description\" content=\"A business that receives rental income must determine whether it is passive or active income, which will have different tax implications.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.effisca.com\/en\/business-rental-income-tax-implications\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Business rental income: tax implications - Effisca\" \/>\n<meta property=\"og:description\" content=\"A business that receives rental income must determine whether it is passive or active income, which will have different tax implications.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.effisca.com\/en\/business-rental-income-tax-implications\/\" \/>\n<meta property=\"og:site_name\" content=\"Effisca\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/effisca\" \/>\n<meta property=\"article:published_time\" content=\"2021-11-19T16:35:02+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.effisca.com\/wp-content\/uploads\/2021\/11\/new-york-1175747_1920.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1275\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Nicolas Godbout, fiscaliste et planificateur financier, M. 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