Documentation/payments

Question

My new client rents properties from individuals and property management companies and then rents them out (month to month, but some people stay for a year, some for 6 months, sometimes only for a month) So really not an Air B n B as he doesn't own the properties.  Lots of expenses  but he makes a very small profit (less than 10K per year).  Not charging GST as per his accountant and the small profit. He hasn't done his taxes or entered anything QB for 2 years so I have to go back and enter everything.  His accountant told him to get up to date as soon as possible but because he has so little actual profit the penalty would not be too bad.  He just incorporated 2 years ago. Do I need to get the names of each person he collects "rent" from?  He has physical receipts for each transaction but doesn't invoice and receives almost all fees via e-transfer, so not easy to track electronically.  For tax purposes do I need to get each person's name on the transaction?   Same with the "rent" he pays to the Property Management companies.  Two of the payors are individual owners, he just wants me to call those payments by the property's address.  I'm assuming for AML purposes we need the name of the person or company it is going to?

dglazer67 · Accepted Answer

I was going to suggest he register just to get the ITC's back on the GST he is paying on his rental expenses. But apparently that is moot as well.

From CRA:

Supplies of rental housing

Rentals of residential properties that are currently exempt under the GST rules will also be exempt under the HST. Landlords are not required to collect the GST/HST on long-term residential rents. In addition, landlords are not entitled to claim input tax credits (ITCs) for any GST/HST paid or payable on taxable goods and services acquired to provide exempt long-term residential rentals.

Thank you so much! Appreciate the insight. Have a great night!

Rochelley · Answer

Hello @dglazer67 ,

First of all, one must be registered for GST based on sales (income), not profit. If his gross income is $30K or more, then he should be registered for the GST, collecting it on his rents/leases, and paying and claiming GST ITC's on all his expenses.

As far as the rental income goes, it is probably more necessary to record all rental receipts against an address rather than in a renter's name. It won't hurt to have the renter's name, but is not absolutely necessary. The address, however, is crucial to know so your profitability on each unit can be measured. When I did books for a landlord, the Address/Unit # was created as the 'customer/job'. All rental payments were received against the customer/address. We tried to keep up to date and put the renter's names in the customer record somewhere. But if you don't have that info, then you have to do the best you can.

Even though he doesn't invoice the renters, they all know (and he knows) what the rental contract says is payable every month. The contract constitutes part of the 'records' in his business and should be available. In QB you should set up each rental amount due as an A/R, at least internally. This is very easy to set up as recurring transactions each month. You don't even have to print the invoices, unless you want a paper record. Then when you collect the rent and apply it against that address, you will always know if the rent has not been paid or how far behind it may be. If he has been doing it on a cash basis up until now, that isn't acceptable. The income is earned in the period in which it becomes due and payable, not when someone finally decides to pay that bill; we all know that rent is often not paid on time. Bottom line, the sale cannot be deferred until the payment is received.

In the case of the "rent" he pays to the Property Management companies, each of those companies should be set up as a vendor, under their business name. Every expense he pays to those companies should be allocated to the address that they apply to by entering the customer (address) into the transaction. This enables you to pull a Profit & Loss by Job report.

There are several different ways that you can do this . . . but basically the CRA requires this:

Business records

On this page:

You are required by law to keep records of all your transactions to be able to support your income and expense claims. A record is defined to include an account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other proof containing information, whether in writing or in any other form.

Keep a record of your daily income and expenses. We do not issue record books nor suggest any type of book or set of books. There are many record books and bookkeeping systems available. You can use a book that has columns and separate pages for income and expenses.

Keep your duplicate deposit slips, bank statements, and cancelled cheques. Keep separate records for each business you run. If you want to keep computerized records, make sure they are clear and easy to read.

Note

Do not send your records with your income tax return. However, do keep them in case we ask to see them at a later date.

Income records

Keep track of the gross income your business earns. Gross income is your total income before you deduct any expenses, including those related to the goods sold. Your income records must include the date, amount, and source of the income.

Record the income whether you received cash, property, or services. Support all income entries with original documents.

Original documents include:

sales invoices
cash register tapes
receipts (I believe you said he has these ??)
bank deposit slips (or bank statements to substantiate the deposits)
fee statements
contracts

Expense records

Always get receipts or other vouchers when you buy something for your business.

The receipts have to show the following:

the date of the purchase
the name and address of the seller or supplier
the name and address of the buyer
a full description of the goods or services
the vendor's business number if they are a GST/HST registrant

Make sure the seller or supplier describes the goods or services on the receipt. However, sometimes that is not possible, as with a cash register tape. In such a case, you should write a description of the goods or services on the receipt or other voucher, or in your expense journal.

It is also possible that a seller or supplier may not provide you with a receipt. In such a case, write the name and address of the seller or supplier, the amount paid for the goods or services, the date you made the payment and the details of the transaction in your expense journal.

Good luck!

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