Question 101 - Jordan Bennett

Your client, Jordan Bennett, owns a residential rental property. During the year, Jordan received monthly rent and a tenant’s reimbursement for utilities. Jordan also paid mortgage interest, repainted several rooms, and upgraded worn laminate flooring to hardwood. When reviewing the tax implications, Jordan asks how these amounts affect net rental income and whether claiming capital cost allowance (CCA) is beneficial.

What would you advise your client?

1. Rent and utility reimbursements are included in gross rental income; mortgage interest and repainting are generally deductible current expenses; hardwood flooring is a capital expenditure; claiming CCA may reduce current taxable income but could lead to recapture later.
2. Rent is included in gross rental income, but utility reimbursements are excluded; mortgage interest is a capital expenditure; hardwood flooring is a current expense; claiming CCA always provides a permanent tax savings.
3. Rent and utility reimbursements are included in gross rental income; mortgage interest and hardwood flooring are current expenses; repainting is a capital expenditure; claiming CCA is mandatory whenever net rental income is earned.
4. Rent is included in gross rental income, but utility reimbursements are excluded; repainting and hardwood flooring are current expenses; mortgage interest is a capital expenditure; claiming CCA can create or increase a rental loss.