Shahrukh owns a residential rental building which he purchased for $200,000 in 2020. In that year, his rental income before CCA was $5,000. In 2021, his rental income before CCA was $8,000. Sharukh always minimizes his tax liability. Which of the following statements is correct?
A)Shahrukh has a net rental loss of $3,000 in 2020.
B)Shahrukh has net rental income of $480 in 2021.
C)Shahrukh has net rental income of nil in 2021.
D)Shahrukh has net rental loss of $7,000 in 2020.

Question

Quizplus · Accepted Answer

Shahrukh can claim CCA (capital cost allowance) on his rental property to reduce his taxable rental income. Assuming he claims the maximum CCA allowed for each year, his taxable rental income would be calculated as follows:

2020: 
Rental income before CCA: $5,000 
CCA: $10,000 (assuming 5% on $200,000) 
Net rental loss: ($5,000 - $10,000) = -$5,000

2021: 
Rental income before CCA: $8,000 
CCA: $10,000 (assuming 5% on $200,000) 
Net rental income: ($8,000 - $10,000) = -$2,000

However, since net rental losses can be carried forward to future years to reduce taxable income, Shahrukh can use his 2020 net rental loss to offset his 2021 net rental income. Therefore, his overall net rental income for the two years combined would be:

Net rental loss in 2020: -$5,000 
Net rental income in 2021: -$2,000 
Overall net rental loss: ($5,000 - $2,000) = -$3,000

Therefore, option B is correct, as Shahrukh has a net rental income of -$3,000 for the two years combined.

Shahrukh Owns a Residential Rental Building Which He Purchased for $200,000