Renting out 2 rooms, tax question and fire insurance question

mar2007 · May 17th, 2009, 07:01 PM

I have a 3 bedroom house and i'm thinking of renting out 2 rooms to 2 friends at work. We'd be sharing the whole house

My room is in the basement and i am always hanging out in the family room downstairs. The living room upstairs never really gets used and i have 3 empty rooms upstairs. Im single so i dont really need all those rooms.

Now my question is would i have to report the income on these rooms on my taxes?
Is it worth it? or will they tax me to much? How would they know im renting out these rooms? I heard if they are just roommates and you are spliting the cost of stuff you dont have to report it

The other question is what happens if there is a fire or stuff gets stolen, should i insurance my friends stuff too? And for how much? Would i need some kind of contract stating that they are covered for this much? And if so can i just type the contract myself?

And yea i already know why its not a good idea to rent to friends.

thanks!

Sonal · May 17th, 2009, 08:39 PM

Hmm... I suppose technically, rent is income and therefore, you technically may have to report it... at a quick look, and it seems that it depends a bit on your set-up.... if most of your house is being rented, then you might need to.
T4036 - Rental Income - 2008

How would they know? Who knows? Maybe you'll get audited. Maybe your roommate will claim rent on their taxes. I don't think it's a likely case that they'll dig into it, but in any case, Revenue Canada does not toss you in jail for this, they take the money.

Now, the advantage of reporting it is that you could write off some of your major household repairs or expenses.
Take a look here under Personal Portion:
T4036 - Rental Income - 2008

Interestingly, your roommates would not be governed under the Residential Tenancies Act (in Ontario--and probably not under equivalent law in other provinces) if they are sharing a kitchen and/or bathroom with you.

As for insurance, I think you are best off insuring everything--house/contents insurance isn't that expensive. Since you aren't governed by the Act, you should be able to cover that with a written agreement. But it might not hurt to talk to your insurance agent to see if your roommates could just get tenant's insurance on their own rooms, and then let them worry about it.

Seem that each group (CRA, law, insurers) define a rental property or a tenant a little differently.

MacDoc · May 17th, 2009, 10:26 PM

Are there not some insurance differences when rental is involved - would the OP not need to be frank with his broker or risk loss of coverage if a claim was incurred.??

Also what about a rental agreement - seems to me it's a pretty grey area and perhaps a bit of "here be dragons" with friends involved.

Sonal · May 17th, 2009, 10:40 PM

	Quote:			Originally Posted by MacDoc
	Are there not some insurance differences when rental is involved - would the OP not need to be frank with his broker or risk loss of coverage if a claim was incurred.??

There are... if you have separate apartments with separate kitchens, you have more risk of fire. That's not the case here, but I am not sure how the insurance company defines a rental.

bsenka · May 17th, 2009, 10:45 PM

In order for "just roommates" to fly, wouldn't you have to be splitting the expenses evenly?

EvanPitts · May 18th, 2009, 01:16 PM

No, they can be "boarders" with no problem. You would have to claim the income, but since it is your primary residence, you can write a portion of it off - unlike if you were purely renting a place where it would all be income. I would check with your insurance company, mostly because you would want to make sure the insurance covers everything, including having a place for everyone to stay if something goes wrong. There are also issues with liability, you would want to make sure you are covered.

I know a guy that does just that, and I've never heard him complain about taxes or insurance that is excessive or anything. He does it because he needs a place to crash when he is in this country, and lets him board with other co-workers that tend to shuttle between here and the coast on a regular, long term basis. It's way cheaper and more convenient than cheap hotels or rooming houses...