When operating a vacation home, several expenses incurred to generate rental income can generally be deducted. This includes certain common expenses such as insurance, property taxes, interest on an eligible loan, advertising costs, as well as some maintenance and repair expenses. However, it is important to distinguish between current expenses and capital expenses, such as certain significant improvements made to the property, which are subject to the rules for depreciation deductions.
What about travel to your rental property?
This is where a lesser-known rule may surprise some owners. When an individual earns income from a single rental property, travel and automobile expenses do not automatically become deductible simply because they need to go to their vacation home. According to the tax rules applicable to rental income, the property must be located in the area where the owner lives. The owner must also perform part or all of the maintenance or repair work themselves and use their vehicle to transport tools or materials to the rental property.
In other words, an owner who has a single vacation cottage located far from their primary residence should not automatically consider their trips to the cottage as a deductible expense. Tax authorities use the notion of property located "in the area where you live," without, however, setting a precise distance in kilometers in the consulted publications to automatically determine the boundaries of this area. It is therefore important to be cautious before claiming these expenses when the property is far from the primary residence.
Two rental properties or more? The rule becomes much more interesting
An important exception exists when the owner earns income from at least two rental properties located in different places from their primary residence. In this case, the rules allow for the deduction of reasonable vehicle usage expenses to collect rents, supervise repair work, or manage the properties. Most importantly, this rule can apply even when the properties are located outside the area where the owner lives.
This distinction is particularly relevant for owners of vacation homes. A person who operates a single cottage several hours from their primary residence may have much fewer opportunities to deduct their travel than an owner operating two or more vacation homes. Therefore, it is not enough for a trip to be made "for the cottage" to conclude that it is tax-deductible: the number of properties operated, their location, and the reason for the trip are also important.
When a vehicle is used for both personal purposes and to generate rental income, only the eligible portion of the expenses can be claimed. The owner should keep a record indicating, in particular, the date, destination, purpose of the trip, and mileage traveled, as well as the invoices related to the vehicle. This documentation helps justify the portion of expenses attributable to the operation of the properties in case of an audit.
Finally, owners of tourist residences must keep in mind that the tax rules surrounding short-term rentals are evolving. At the federal level, certain expenses related to a short-term rental that does not comply with provincial or municipal requirements may now be non-deductible. Compliance of the establishment, record-keeping, and a good separation between personal expenses and those related to the rental activity are therefore becoming increasingly important.
To remember : Travel expenses to a tourist residence are not automatically deductible. An important distinction exists between the owner of a single rental property and one who operates two or more properties. Before claiming significant automobile expenses, particularly for a property located far from your primary residence, it is recommended to validate your situation with your accountant or tax advisor.
Sources : Revenue Quebec, The individual and rental income (IN-100) and information on short-term accommodation; Canada Revenue Agency, T4036 - Rental Income