What New Tax Policies Affect Rental Properties in Ontario?

As we move into 2024, Ontario landlords and investors are required to be fully aware of up-to-date tax policies that relate to rental properties.

Royal York Property Management works hard to keep our clients current on the new tax policies of 2024 so that they can make the best possible decisions about their rental investments. Being rated number one in property management for six years running, Royal York Property Management assures property owners of the ability to relax and diversify their portfolios while professionally managing complexities.

Competitive in the Ontario landscape, the property management portfolio is strong and now includes 22,000 properties valued in excess of $10.1 billion in combined assets. In this blog, we will be discussing the new tax policies for 2024 and what Ontario rental property owners face.

Overview of Existing Tax Policies   

Before discussing the new changes, it is important to understand what existing tax policies were in place before 2024. Historically, Ontario landlords have contended with property taxes on rental income, income taxes, and capital gains taxes upon property disposition. These taxes have influenced how rentals are priced, the strategies behind investment, and overall profitability. Knowing what these baseline policies are will help set a context for how new changes are going to have an impact on the market.

New Tax Policies Introduced in 2024  

Ontario has introduced changes to property tax rates, reflecting the need to balance municipal budgets while dealing with housing market dynamics. In order to encourage purpose-built rental properties, municipalities are now allowed to offer lower municipal property tax rates on new multi-residential rental properties. This move is to increase rental housing development in Ontario, where a dire housing affordability crisis is continuing.

As of January 1, 2024, income tax deductions for expenses against short-term rental income, for instance, interest expenses, are denied in jurisdictions where such rentals are illegal. This mainly affects properties listed on platforms like Airbnb and VRBO. This small change will affect the expenses of rental property owners and could ultimately increase costs that get passed on to the tenant.

New Landlord Tax Credits  

The government has introduced a number of tax credits, specifically for landlords, to offset some of the increased costs. They hope to incentivize property improvements and energy efficiency upgrades. For example, landlords who invest in energy-efficient windows, heating systems, or other eco-friendly upgrades can now claim substantial tax credits. This is a measure that helps a landlord reduce their taxable income while modernizing and making rental properties sustainable.

Adjustments to Capital Gains Tax    

This planned increase in the inclusion rate has created a frenzy of discussion, worry, and anxiety, and in some cases, the opportunity to get ahead of the change by doing some proactive planning. Investors and financial advisors scramble to reassess their strategies in light of what their impact could be on future returns. Such a change is forcing a re-think of portfolios, with some opting to advance the sale of some assets to lock in current rates. Thus, this critical alteration impacts effective tax planning and maximizing after-tax profits; timely advice and action become more important than ever.

Impact on Rental Property Owners  

Increased Costs or Savings  

New tax policies bring with them increased costs and potential savings. Property taxes are increasing, meaning higher annual outlays for landlords. But new tax credits for property improvements will mean gigantic savings for many, in particular those who invest in energy-efficient upgrades. Weighing these factors will be key to maintaining profitability.

Tax Planning Strategies  

Tax planning will be more important than ever. Landlords will certainly consider how they can consult tax professionals to find ways to maximize the benefits of the new tax credits while at the same time minimizing the impact of increased property taxes. This might involve the strategic timing of property improvements to coincide with fiscal years or strategically planning property sales to take advantage of favorable capital gains tax treatment.

Compliance Requirements 

New tax policies bring new compliance requirements. The landlords will need to keep up to date with the documentation and reporting obligations to avoid penalties. Keeping detailed records of property improvements and understanding the criteria that would permit the claim of new tax credits will be very critical. Proactive compliance will not only help the landlord benefit from available credits but also save them from heavy fines and legal issues.

Effect on Rental Market Dynamics  

Increasing property taxes might raise the level of rent as the landlords seek to recover their increased expenses. The availability of tax credits for property improvement might enable the landlord to justify such an increase with enhanced, more energy-efficient properties. Knowing the balance between these will be crucial in determining competitive rental rates.

These new tax landscapes will influence decisions with regard to investments made by current and prospective landlords. High property taxes may deter some investors, while the possibility of tax credits and long-term gains through improved properties will attract other investors. Investors should take this aspect seriously when making a choice to enter or expand in the rental market.
Future Outlook  

With the significant changes the 2024 tax policies are going to bring about, it is critical to remain very much abreast of any potential future changes. Political and economic changes could bring about further tax reforms that may impact rental property investment. Keeping the pulse on these trends will allow landlords to adapt quickly and make informed decisions.

This will lead to a more balanced rental market over the long term, with a stock of modern, energy-efficient properties. Increased costs and incentives to upgrade may result in a much higher standard of rental housing that benefits both landlord and tenant.

The new tax policies affecting rental properties in Ontario are very important to maintain profitability and make the right investment decisions. The changes brought about in 2024 bring challenges and opportunities that call for a landlord to be active in tax planning and strategies related to property management. For more information on Royal York Property Management and our services, visit: royalyorkpropertymanagement.ca