Capital expenses – Special situations
The following situations may change the way you deduct your expenses:
Modifications to rental properties to accommodate persons with disabilities
You can deduct expenses you incur for eligible disability-related modifications made to a building in the year you paid them. You can do this instead of adding them to the capital cost of your building.
Eligible disability-related modifications include changes you make to accommodate wheelchairs, such as:
- installing hand-activated power door openers
- installing interior and exterior ramps
- modifying a bathroom, elevator or doorway
You can also deduct expenses you pay to install or get the following disability-related devices and equipment:
- elevator car-position indicators (such as braille panels and audio indicators)
- visual fire-alarm indicators
- listening or telephone devices for people who have a hearing impairment
- disability-specific computer software and hardware attachments
Renovating an older building
Renovations or repairs are usually considered to be a current expense. When you renovate or repair an older building that you bought to make it suitable to rent, the cost of the work is considered a capital expense.
Selling your property
If you make repairs to your property because you want to sell it, or you make the repairs as a condition of sale, the repairs are capital expenses. However, we consider the repairs to be current expenses if they would have been made anyway and the sale was negotiated during the course of the repairs or after their completion.
You may have certain costs relating to the period you were constructing, renovating or altering your rental building to make it more suitable to rent. These expenses are sometimes called soft costs. They include:
- legal fees
- accounting fees
- property taxes
Soft costs for the period of construction, renovation or alteration of a building are made-up of the soft costs related to the building and ownership of the related land. The building's related land consists of the land:
- that is under the building
- that is just beside the land under the building; used or intended for use for a parking area, driveway, yard, garden or any other similar use; and necessary for the use or intended use of the building
Depending on your situation, soft costs may be deductible as a current expense or added to the cost of the building.
Soft costs related to the building may be deductible as a current expense if they relate to:
- only the construction, renovation or alteration of the building
- the time period it took place in
We consider the period of construction, renovation or alteration to be completed on whichever date is earlier:
- the date the work is completed
- the date you rent 90% or more of the building
When these conditions are met, the amount of soft costs related to the building that you can deduct is limited to the amount of rental income earned from the building.
Soft costs that do not meet the above conditions can be added to the capital cost of the building and not the land.
Capital cost allowance (CCA), landscaping costs and disability-related modifications to buildings' costs are not subject to the soft cost rules.
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