Roofing work and taxes: current or capital

The classification that decides everything

The Agency sorts the expenses of a rental property into two families.

The first is the current expense. It brings the property back to the condition it was in, and it recurs at more or less short intervals. It is deducted from the rents of the year in which it is incurred.

The second is the capital expense. It provides a lasting benefit, or it makes the property better than it was originally. It is added to the cost of the building and depreciated over the years.

What is at stake is when the tax goes down, right away or little by little. The question comes up before the job, just like the question of grants and financial help for roofing.

A roof example in the guide

The Agency's guide T4036, on rental income, contains an example about roofing. Applying tar and new shingles where the roof leaks is given there as a current expense.

Nothing in what was read deals with the full replacement of a roof.

Elsewhere, the Agency gives other examples. Wood siding replaced with vinyl is a capital expense. Electrical wiring replaced without improvement is usually a current expense.

Four criteria to sort it out

The Agency offers a set of questions.

• How long the benefit lasts. A lasting benefit generally points to capital.
• Maintaining or improving. Restoring the original condition is normally current. Going beyond that condition is probably capital.
• A part or a whole. Repairing a property by replacing one of its parts is usually current.
• The size of the amount. An amount that is very high compared with the value of the property tips toward capital. The Agency specifies that this criterion is not decisive on its own.

The Agency adds a nuance. A large sum spent at once on repairs that should have been done earlier can still be deducted as a current expense.

A roof redone identically and a roof redone with a better material, more insulation or corrected slopes may not be classified in the same place. This site does not decide. The classification is an accountant's job.

Three situations to flag to your accountant

• The building was just bought in poor condition. The Agency treats as a capital expense the repair that restores a newly acquired used property.
• The work prepares a sale. According to the Agency, repairs made in anticipation of a sale, or set as a condition of the sale, are treated as capital expenses.
• Financial help was received. The texts consulted do not say how it is treated.

In Quebec

Revenu Québec's rules were not consulted. These rules, and any provincial renovation tax credit, should be read on its website or asked of an accountant.

The papers to hand over

Keep the quote, the contract, every invoice and proof of payment. Federally, rental income and expenses are reported on form T776.

Frequently asked questions