A few years ago when I started doing live events teaching people how to invest, one of the things I wanted to do for my students was provide them with a snack during the class. Costco offered some great snack options, so I signed up for a membership and was able to legitimately write off the membership as a business cost on my corporate taxes.
Fast forward to today, and I no longer have any live classes planned, but I still want to write off the membership. Well, recently I was at Costco and I saw a few services I’d never noticed before…
- Real estate listing service
- Home inspections
- Legal services
- Mortgage services
I had no idea these types of services were offered (I guess Costco doesn’t market them very well!). Anyways, they were more than enough reason to continue renewing my membership and being able to deduct the cost.
After I thinking about it, I realized Costco could be used for more than just real estate services. For example, you can buy…
- Tools (for doing renovations)
- Furniture (for basic renovations and home staging)
- Gift baskets (at Christmas time and throughout the year for your tenants)
- Computer equipment (for a home office)
And that’s just a few ideas I came up with.
CRA Is Subsidizing Your Costs
By writing off your membership, CRA is actually helping to subsidize the cost. So, for example, if you are an investor owning properties personally, you can write off any costs against the income of the property.
And if you have a loss, you can write off that loss against your personal income (e.g. from a job). In either case, you’ll either pay less in overall taxes or get a tax refund if you have a loss. Note: I am not an accountant, so before trying to deduct your membership costs, please consult one.
A basic membership costs $60, with the executive one (with more services) costing $120. And while that may not seem like a lot, every little bit counts.
The Ultimate Secret
When I first became interested in investing and business, I had to learn things the hard way because I didn’t have anyone to teach me.
I was 21 or so and I started my first business… I joined a network marketing company selling health products. Somehow I thought just because an expense was a ‘tax write off’, it was somehow a good thing (everyone was telling me ‘you can write it off!’). So I incurred all kinds of costs for my business, some of which I probably could have done without.
After awhile of losing money, I finally figured out that an expense is cash out of your pocket, no matter what it’s called and no matter what the tax consequences! If you don’t have enough money coming in to cover that expense, you should reconsider making that purchase.
That was a tough lesson to learn, but there was an even better one that almost no one was talking about. It was the secret to actually making tax write offs work for you. It was such a simple process, I couldn’t believe I had seen it before and that more people weren’t talking about it.
The secret is…
- Find something you personally want or need
- Figure out how to legitimately use it in your business, and then
- Claim it as a deduction
That’s it! A simple, but very powerful way to make the purchases your real estate business needs to grow, and to personally benefit from the purchases at the same time.
Know Your Deductions
Now be careful with this… don’t go buying all sorts of personal things and then trying to fit them in a business deductions later, without knowing what you can deduct.
In fact, that’s part of the trick… knowing what deductions you have available to you, depending on how you’re holding your real estate portfolio. CRA actually distinguishes between quite a few different methods, and they allow different deductions for each…
- Held personally, 2 or more properties
- Held personally, 1 property only (limited travel costs)
- Held in a corporation, 5 or less employees (full corporate tax rates apply)
- Held in a corporation, 6 or more employees (small business tax rates apply)
- and more
As you can see, the rules can get complicated (that’s why I recommend an accountant). If you’re like most people, you’ll be holding properties personally and for that situation, unfortunately, your options are limited compared to your properties being held in a corporation and treated as a ‘full business’.
For more details on personally held properties, I recommend you check out the CRA Rental Income tax guide to see what deductions you have available for you, and then maximize your deductions by trying to find a ‘personal’ element to them.
If you use this ‘secret’ consistently (and legitimately), you’ll find that your tax bills will get lower, keeping more cash in your pocket, all while your net worth grows over time.
Just don’t forget… an expense is cash out of your pocket, even if you can deduct it, so be sure you really need the expense before making it!
What kinds of deductions have you made for your investment properties or investing business?