Do I need to declare rental income?

It can be tempting not to declare rental income because it could mean having to pay tax on it. But here's why you should be doing so anyway.

Renting out property to tenants can be a lucrative move. But keep in mind that you do not get to keep all the income.

• Legally, you are obliged to declare any rental income you receive from a property you own, even if you are just renting a small basement apartment to a single student for not very much money.

Even though it’s the law, many people still choose not to declare the income.

• This is not recommended, this act of defiance can come back to haunt you.

Here are two main reasons people don't declare rental income:

• Simply put, this way they don't have to pay tax on it. Declaring rental income will cost you money because you'll likely have to pay a portion of the money you received to the government.
• It can make doing taxes more complicated. Not only are there more items and numbers to include when you file your taxes, but if you are audited, you would have to provide proof of rental income received.

Firstly, if you do not declare the income initially and you get audited by the government, then you will have to pay tax on the income. But that's not all.

• You will also likely have to pay a penalty, in the form of interest on the tax you are required to pay.

Secondly, by not declaring and paying tax on rental income, you are risking spending money that is not really yours to spend.

• If you get found out and have to pay back this money, if you don't have it, it can end up costing you more than if you just paid tax on the money in the first place.

Declaring the money you receive from tenants is required by law.

• Keep in mind that you can get tax breaks for any expenses associated with your rental unit.
• For example, if you are renting out an apartment and the fridge in that apartment breaks, you can usually take the cost of the fridge repair or the cost of a new fridge into account on your taxes.

Other types of possible deductible expenses include:

• The cost of advertising your rental property
• The interest on the mortgage payments associated with the rental unit
• Any insurance costs you were paying to cover the rental unit
• Repairs and maintenance associated with the unit, such as in the example above with the broken fridge

To summarize, it can be tempting not to declare rental income, but you are required to do so by law. What can make this law easier to accept is the fact that you can deduct expenses associated with the rental.