Capital expenses - Special situations
The following situations may change the way you deduct your expenses:
Modifications to buildings to accommodate persons with disabilities
You may renovate your existing rental property to accommodate persons with disabilities. You can deduct outlays and expenses you have for eligible disability-related modifications in the year you paid them, instead of having to add them to the capital cost of your building.
These changes include:
- installing hand-activated electric door openers
- installing interior and exterior ramps
- modifying a bathroom, elevator, or doorway so a person in a wheelchair can use it
You can also deduct expenses you pay to install or acquire 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
Buying an older building
If you buy an older building that you have to repair or renovate to make it suitable to rent, the cost of the work is a capital expense. This is the case even though you would usually treat these costs as current expenses.
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 were necessary and you made them to your property or were making them before you decided to sell.
Costs relating to construction, renovation, or alteration - soft costs
You may have certain costs relating to the period you were constructing, renovating, or altering your rental building to make it more suitable for renting. These expenses are sometimes called soft costs. Soft costs include:
- legal fees
- accounting fees
- property taxes
Soft costs attributable to the period of construction, renovation, or alteration of a building are made up of the soft costs relating to the building and those pertaining to the ownership of the related land and attributable to that period. The building's related land consists of either 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 all 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 are capital expenses. Add them to the capital cost of the building and not the land.
Capital cost allowance (CCA), landscaping costs, and costs for disability-related modifications to buildings are not soft costs. Therefore, they are not subject to the soft cost rules.
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