{"id":75,"date":"2015-04-04T10:01:45","date_gmt":"2015-04-04T14:01:45","guid":{"rendered":"http:\/\/thinkingoutsidethebox.guru\/home\/?p=75"},"modified":"2015-04-08T15:09:18","modified_gmt":"2015-04-08T19:09:18","slug":"rent-to-own-taxation-part-1","status":"publish","type":"post","link":"https:\/\/thinkingoutsidethebox.guru\/home\/rent-to-own-taxation-part-1\/","title":{"rendered":"Rent-to-Own Taxation (Part 1)"},"content":{"rendered":"

\"cherry-chan-cpa-ca\"<\/a><\/p>\n

The following is a guest post by Cherry Chan, Chartered Professional Accountant. Cherry specializes in real estate taxation and has many great posts on the subject on her blog. For more info visit Cherry\u2019s website at:\u00a0http:\/\/cccpa.ca\/<\/span><\/span><\/a><\/em><\/strong><\/p>\n

A rent-to-own program is a win-win program for both the investor\/landlord and the tenant\/buyer.\u00a0 It allows the investors to generate cash flow from a single family rental and provides the opportunity for otherwise unqualified buyers to purchase their homes over a period of time.<\/p>\n

In a typical rent-to-own arrangement, there are (3) three streams of income.<\/p>\n

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  1. Firstly, the tenant buyer pays a down payment in exchange for the option to purchase the property at the end of the contract.\u00a0 Usually the term of the contract is two to three years.<\/li>\n
  2. Secondly, the tenant buyer also pays rent during this contract.\u00a0 A portion of the rent is used to contribute to the purchase price at the end.\u00a0 This is called rent credit.<\/li>\n
  3. Thirdly, at the end of the option contract, the tenant can choose to purchase the property at the preset purchase price.<\/li>\n<\/ol>\n

    As investors, how do we report the income from the rent to own arrangement?<\/p>\n

    This depends on your personal tax situation.\u00a0 If rent-to-own is considered as a business, all three streams of income are required to be reported as income.\u00a0 If the rent-to-own investment is capital in nature, these three streams of income are reported differently.<\/p>\n

    Let\u2019s first look at how Canada Revenue Agency (CRA) determines whether the rent-to-own investment is a business or not.\u00a0 CRA looks at the following criteria when they consider whether to classify the rent-to-own investment as business or capital in nature.<\/p>\n

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    1. Is the rent-to-own transaction similar to the landlord\u2019s \u201cnormal course of business\u201d<\/em>?\n