BusinessPlanning to rent your basement? Here’s what you need to know

Mary ChapmanAugust 27, 20197 min

There are two main reasons why people rent their basements. One is to offset the cost of their mortgage. The other is to gain another source of income.

But, there’s much more to renting a basement than just taking photos and posting an ad online. Here is everything you need to know about renting your basement in Canada.

Know the rental rules in your area

A survey of over 5,000 Canadian homeowners found that as many as 17% of basement rentals in detached homes are illegal.

The provinces and territories each have different rules about rental units. Make sure you find out what the rules are where you live before you move forward.

Do you have a permit?

Before you post your basement apartment on Kijiji or other rental sites you need to make sure that your space meets the minimum requirements for renting.

Many people who buy homes with unfinished basements think of the rental potential of a basement apartment. But, did you know that you need a permit to finish a basement?

If you moved into your home and it already had a finished basement, you’ll have to find out if the previous owners had a permit for their renovations.

If they didn’t have a permit, your basement may not meet the requirements for renting. Some of the requirements include:

  • having enough fire exits (small basement windows typically don’t count),
  • sufficient smoke and carbon monoxide detectors,
  • proper electrical wiring , and
  • enough insulation.

Contact your municipality to register your rental unit. They will send an inspector to check that your space is up to code.

Always sign a lease

Even if you are renting your basement apartment to friends or family members. Get each adult tenant to sign a written lease.

Your lease should include your rules (such as no smoking), the length of the term, the penalties for late rent payment, and so on.

Will you include utilities in the rent?

When getting ready to rent your basement, you need to consider if you will include utilities or not.

You can either roll the estimated cost of your tenants’ utilities into their rent, or you can ask your tenants to pay a certain percentage of your total utilities.

The benefit to having tenants pay a portion of the utilities is that they will be more mindful of turning off lights and limiting water usage because they are paying for it.

Yet, some tenants may be turned off by having to pay two or more bills. Renters like to budget and be sure of their expenses before they move in.

However, if you do pay for your tenants’ electricity, you may see your bill go through the roof because of their excessive use.

Know you’ll have to claim rental income on your tax return

As soon as your basement rental starts bringing in money, you will have to claim that income on your tax return.

Rental income that is paid to an individual is taxed the same as other income you receive. It may be in your best interest to create a corporation to reduce the tax you have to pay. Plus, you may be able to deduct some of your expenses to reduce your taxes.

If you decide to sell your house in the future, a portion of the capital gain might be taxable. Talk to a tax consultant about how renting your basement will affect your taxes now and if you sell.

Let your home insurance company know you are renting

When you rent out a room or your basement, you must let your home insurance company know. This is crucial in order to not void your policy.

If you fail to inform your insurance company about a tenant and something goes wrong in the rental, the insurance company may be able to deny coverage.

So, make sure you let your insurance company know the moment you get a tenant.

What other tips or advice do you have for would-be landlords? Let us know in the comments.

Note: This is intended to be used as general information only and does not constitute legal advice.

Mary Chapman

Graduated from the University of Toronto with an Honors BA English Specialization and has completed several publishing courses at Ryerson University. She is a proofreader, editor, and content writer based in London, Ontario.

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