How does income from a rental property create RRSP contribution room?
A retiree has rental income both here and abroad. He is responsible for reporting profit made on those incomes both here in Canada and abroad. Foreign and domestic incomes from rental properties are eligible to increase your earned income, which is used to calculate your RRSP contributions room. If you have property in other countries and are experiencing difficulty reporting the net rental income from these properties to add to your RRSP room, you are likely not doing the appropriate reporting for tax purposes.
- Canadian residents are taxed on their worldwide income. Therefore, foreign rental income is taxable in Canada but not everyone knows or reports this income.
- Income may also be taxable in the country in which it is earned, and may require filing of a foreign tax return as well. To avoid double taxation, foreign taxes paid are generally eligible to claim for a foreign tax credit in Canada.
- Domestic and foreign net rental income is considered earned income for RRSP purposes. Net rental income is gross rental income minus deductions like mortgage interest, property tax, insurance, and maintenance. Net rental losses, when expenses exceed income, reduce earned income when calculating RRSP room.
“If you are looking for tax deductions, you can deduct depreciation on your rental property. CCA can be used to reduce your net rental income to zero, but not to create a net rental loss. Reducing your net rental income will reduce your earned income and resulting RRSP room.”