Delean: The tax implications of renting out your home

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The tax implications of renting out your home and being covered by the Quebec prescription drug plan were among the topics raised in recent reader letters. Here’s what they wanted to know.

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Q: We go south every winter and rent out our house for three months. This income is declared on our taxes. Does this affect the principal-residence exemption in any way?

A: Canadian tax rules specify only that a house be inhabited by the owners or their children at some point in the year for it to be eligible for the principal-residence exemption. So renting it out for a few months shouldn’t affect that status, since your primary reason for owning it is not to generate income.

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Q: In 1990, my wife and I purchased a cottage for $40,000. It’s in both of our names, even though she was not working and had little income at the time. We never rented it out. In 1991, we purchased our home, which is in her name, for $32,100. I know we can designate either property as our principal residence. For the other property, does the name on the deed determine the tax obligation, or are both considered to be jointly owned because we’re a couple?

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A: This one could be tricky. Canada Revenue Agency says that, in general, when a property is owned by two spouses, the capital gain resulting from the sale is allocated between them “based on their respective ownership interests.” You could probably make the case that the ownership interest is equal on both properties, regardless of what the deed says. Whether CRA accepts it is another matter.

“The determination of whether a person beneficially owns a particular property is a mixed question of law/fact that can only be determined after a review of all the facts and circumstances applicable to a particular situation,” the tax agency said.

Q: I retired in 2013 and had private health insurance covering health expenses for me and my husband, among them my prescription medications. Last year, I turned 65 and my former company advised that I register with the Régie de l’assurance maladie du Québec, which became the first payer of my prescriptions (with my private plan picking up the portion RAMQ did not cover). Do I need to pay (on my provincial income tax return) the annual premium of over $600 for the Quebec prescription drug plan? If so, is that premium claimable on the federal and provincial tax declarations of 2021?

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A: The prescription drug plan is probably the single most confusing element of the provincial income-tax system. With few exceptions, it’s obligatory to pay for it if you don’t have a private health-insurance plan, and it can be obligatory even if you do, if you’re over 65, because most health-insurance plans for seniors only cover expenses (or a portion thereof) that the public plan does not.

In your case, you will be required to pay for the plan (Schedule K of your provincial tax return) for the months last year after you turned 65. Quebec will allow you to count that as an eligible medical expense for the 2021 tax year, but on the federal return, it only becomes an eligible medical expense for the 2022 tax year (since you paid it in 2022).

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If you pay anything for the private coverage, that’s an eligible medical expense as well on both the federal and provincial returns.

If your former employer contributes to the private plan, that is a taxable benefit on the Quebec return but also an eligible medical expense.

Any amounts that you disbursed for prescriptions or other medical services also qualify.

Q: Can professional services from an orthopédagogue (special needs teacher) given to a child having difficulty learning at school be deducted as a medical expense on tax returns?

A: Canada Revenue Agency’s response is a qualified yes. It says some professional services, including amounts paid for tutoring services that are additional to the primary education of a person with a learning disability or an impairment in mental functions, “may” be deducted. But a medical practitioner “must certify in writing that these services are needed.”

The Montreal Gazette invites reader questions on tax, investment and personal finance matters. If you have a query you’d like addressed, please send it by email to Paul Delean at [email protected].