Claiming travel expenses for real estate investors

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Today, I’m going to dive into a topic that’s often a maze of confusion: claiming travel expenses for real estate investors. As investors, we’re constantly on the move, exploring properties near and far, maintaining our real estate portfolio, and attending conferences to up our game. But understanding the ins and outs of what can be deducted when it comes to travel can be a game-changer in maximizing our tax deductions. Join me on this journey as we unpack the nuances, potential pitfalls, and savvy strategies behind claiming travel expenses for real estate investors in Canada.

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Video Transcript: Claiming travel expenses for real estate investors

Can I deduct my travel expenses as a real estate investor?

You probably have heard me say this a couple of times…the answer is, it depends.

Please stick around to the end of the video. We’re going to talk about a pretty significant tip slash trap relating to foreign travel.

I’m George Dube, saving the world from tax one bow tie at a time™.

So what did the answer depend on?

Well, generally speaking, Revenue Canada’s looking to see whether or not you’ve incurred these expenses as part of the process of earning income from a business or a property. Let’s jump into a couple of different examples.

So on the real estate side, clearly it’s going to be required at different points to have travel expenses and Revenue Canada has their administrative positions, opinions, as to when and how this can be done. So some of the items that we’re looking at, maybe they include costs of public transportation, automobile, and we’re going to have a separate series of videos on calculating automobile expenses coming up. Maybe we’re looking at meals and entertainment. We have a host of things that may be included as part of this. And part of this is now going to begin to depend on how many properties do we have. But overall, if we look at it through a lens of what would be reasonable in the circumstances and are there exceptions, we’re going to nail a lot of the opportunities that are available to us.

Meal and entertainment deductions – an exception

One of those big exceptions relates to meals and entertainment.

Generally, we’re only going to be allowed to deduct 50% of the cost of meals or the entertainment. Entertainment’s probably not as big of a factor in the travel side, there may be other areas in your business that it can relate to. But the concept of the 50% from Revenue Canada’s eyes is to say you are going to have to eat anyway and why should the Government of Canada and its taxpayers subsidize you for eating a meal? But they do acknowledge there are additional costs related to it that are possible, hence the deduction.

Number of properties and claiming travel expenses

So as a real estate investor, we have restrictions with respect to the number of properties we own and the ability to more easily claim travel expenses. For example, owning one property: Revenue Canada is considering if you were to go out, do some repairs, you needed to move essentially some tools for example, in order to do those repairs. They’re okay with that. Having more than one property in the same area opens up the floodgates in the sense of now collecting rent is no longer considered a personal expense. I think there’s certainly some question as to whether it should have been considered personal in the first place with just one property, but I think it’s probably more accurate to describe it as that’s Revenue Canada’s way of saying this is what’s reasonable for someone that has one property versus more properties. The more properties we have, the more lenient Revenue Canada is and the more reasonable different expenses can appear.

Is travel out of your city, province, or country deductible?

So a common question I’ll receive is “I own some property outside of the city. I may have some properties in a different province, may even be a different country. How can I work with the travel expenses? What’s deductible?”

And again here the answer, as frequently it is, is it depends.

So some things we need to be thinking about. For starters, Revenue Canada is very keen on restricting travel expenses where you only own one property. And going back to that lens that we described earlier of saying Revenue Canada’s looking for reasonable amounts. So yes, it is possible unquestionably to deduct travel costs going to another city, going to another province, going to another country.

Some of the potential hiccups though, if for example, you’re routinely, and I’ll use, I should define that a little bit more. Perhaps we are regularly going to another province or country. Was it really necessary for us to do that travel? Did that help us earn income from the business or property? Was it reasonable in the circumstances? Clearly Revenue Canada’s trying to weed out a scenario where as a Canadian real estate investor, we have some properties in a sun-filled destination. Are we really going there to earn income? Are we going there more for personal recreation? That again is going to be, it depends. I think periodically going will not be an issue. Trying to argue you need to go down to Arizona or Florida for an extended period of time during the winter, we’re going to start to get some pushback, as you would expect, from Revenue Canada.

And that’s not to say that we can’t combine some vacation element to that business or investment component, but now Revenue Canada’s going to be very interested in how are we carving out the investment component first, the personal component. And if we’ve gone down and we’re going to commonly need a little bit of time to look at the properties, depending what country we’re talking about or a province, perhaps do some maintenance, supervise what’s going on. Again, that’s reasonable.

If we keep thinking about how much time was reasonable in terms of hotels, meals, entertainment, things of this nature, and ensuring that we had days that had enough meat and potatoes into them from a supervisory working on perspective, great. Whereas if again it looks like it would’ve taken a normal person a couple of hours to do whatever tasks you’ve identified, now we have some problems.

We need to be able to say what was the primary purpose of that trip? It’s okay if there’s some extra, but let’s be reasonable with Revenue Canada and predominantly they’ll be reasonable with us.

Does owning real estate in a corporation change travel expense claims?

So if I own real estate in my personal name as compared to a corporation, are there any differences for deducting travel expenses?

And again, as always the answer is, of course, it depends.

But a couple of things to be thinking of first, and we’ll have again a separate video series for this. The expenses can be quite different in terms of how they’re calculated.

Moving on from this, it’s again this concept of Revenue Canada…they’re looking at were these expenses necessary for the purpose of earning income from a business or property? It’s an interpretation question. With a corporation, there’s a what I’ll call a prima facia case to be made that that activity within the corporation was a business that was for the purpose of earning income. I’ve certainly been in scenarios in dealing with auditors where the taxpayer owned the properties personally and the auditor argued that in their interpretation, and I’m hammering this term interpretation, but the costs were not relevant or rather not related to the business or earning income from the property itself, but they were personal in nature. So just having that corporation helps remove some of the interpretation issues that can arise.

Combining business travel and a personal vacation: What travel expense can real estate investors claim?

So let’s give some thought to, we’re looking at some properties in another country, we’re also taking some vacation time. Let’s use the example of Orlando. So we’re going to go visit Mickey Mouse. Is our primary purpose to look at property or is it from a personal recreational perspective? We’re going to have to convince Revenue Canada and show them. It’s reasonable to believe that the purpose was at least including the ability or desire to buy properties. And clearly I think it would probably be viewed as unreasonable if we were to go down say 10 years in a row and we’ve never bought a piece of property on that first instance. Perhaps we’re going to be given a little bit more the benefit of the doubt provided again, we’re being reasonable in carving out the time, expenses relating to looking for the property versus the recreational aspect. In other words, if it was going to take us three days of property search activities related to the properties and we were down there for 10 days, we need to reasonably carve out hotel costs, meals, entertainment between the personal and the business component to help us provide some evidence.

As to the business component, again, it’s really important that we have itineraries to be able to show Revenue Canada and justify that our days there from that business perspective were filled with activity that again, was necessary for us to be down there, in contrast to someone else could have reasonably perhaps done this in two hours. The rest of the time they could be out by the pool or visiting Mickey Mouse.

In our example where we’re reasonable with Revenue Canada and carving out the business component versus the personal component, we’re much more likely to get those deductions and receive that benefit of the doubt.

Beware social media and claiming travel expenses

As a quick tip, and I really appreciate many people love social media when we’re down there looking for properties and allegedly doing business and investment activities, meeting with realtors, keeping records of the people that we’ve met, the time we spent, the nature of the conversations. If our social media, however, is showing a lot of pictures with Mickey Mouse, the kids running around a swimming pool, and not a whole lot of business investment activity, Revenue Canada’s not silly. They also can check out your social media and see what’s going on. Give yourself a helping hand.

Restrictions on conventions and claiming travel expenses

Frequently I’m asked, I’m attending this convention as a real estate investor, am I allowed to deduct the cost associated with this? And the answer of course is…it depends. But let’s start trying to stack the deck in our favor.

In Revenue Canada’s eyes, we’re allowed up to two conventions a year where they’ll provide deductions. It starts to become fuzzy what a convention is as compared to a conference as compared to attending courses as compared to networking and business development opportunities or events. But nevertheless, we have to make an effort to distinguish those and show Revenue Canada that we’re aware of those differences. Keeping in mind there’s a two-convention limit that is not written in the income tax act. That is Revenue Canada’s interpretation of what reasonable means.

Further defining what reasonable means in Revenue Canada’s eyes, where we have, for example, a local landlord’s association that’s planning a trip to Arizona. Revenue Canada’s not going to be quite as keen on this. They want to see that the organization or the governing body actually has jurisdiction, if you will, in the area that we’re attending. So in our example, it may be appropriate to invite the Phoenix Landlord Association to help ensure that we have some deductibility opportunity.

It’s also worthwhile to consider, where we are going down to Phoenix, we acknowledge we’re going to spend some extra time down there, see the sites, play a little golf, whatever it may be. Let’s ensure that we’ve made a reasonable attempt at dividing the business from the personal. So provided our primary purpose of going down was from a business perspective, we should be able to deduct the full cost of airfare. In terms of meals, entertainment, again, if we’re going to spend 10 days down there, three is hardcore convention, real-estate oriented. And we can show and justify that. Let’s acknowledge the personal component. If we’re reasonable with Revenue Canada predominantly, they’ll be reasonable with us.

Bringing family – can you still deduct travel expenses?

Often a leading question or follow up question to the travel expenses and foreign travel, or out of province travel, in particular. What happens if I’m inviting family, spouse, kids? How does this play into it?

So let’s again look at an example.

But first I think we can, in most cases safely say having minor children attend with us is not going to help from that business perspective. I accept that there’s going to be some exceptions to that. Having a spouse attend, however, completely different story possibly. So again here it’s also going to start to depend on, well for example, the age of the children. If one of the parents is attending conferences, business events, et cetera, and we have a couple of toddlers running around, that’s probably a full-time job for the other parent. Again, harder to argue they were involved in the business aspects, whereas if those children were teenagers, as an example, to a degree they can take care of themselves.

Often that conference may have breakout sessions and whatnot for the spouse. So again, going down to the conference, having your husband attend the breakout sessions for the other spouses, that’s all wonderful. And if again, maybe it’s going to be say a day of the conference, of a three-day conference, maybe we’ve justified the husband being able to be deducted for the one day, you’re being deducted for say the three days. The kids not at all.

What we’re trying to do is carve out the business versus the personal element. So it’s not to say that you can’t have spouses or children attending. It’s to say, let’s be reasonable. Was it really necessary? Did it help in some areas, maybe both of the spouses are actually attending, legitimately quite, the conference from that business perspective and whether that is directly or indirectly through managing the backend of an office or clinic or whatever it may be, or even strategic planning related to overall, how are we operating our activities? Let’s ensure we’ve got a reasonable story for Revenue Canada to see why it was necessary to have family there.

A tax trap to avoid when travelling out of the country – Nexus

A little trap exists as we potentially consider doing some travel out of the country. If we’re making business decisions, signing contracts, deciding on some significant events for our corporation or business investment activities, we do run the risk of all of a sudden creating Nexus in a foreign country.

Where is mind and management of that business?

And Revenue Canada will almost always, of course, be arguing that’s in Canada. This is just a trip. That foreign country may not have quite the same view as Revenue Canada. Or they may say there’s actually a dual requirement, one for Canada, one for that foreign jurisdiction. So it’s not to say that we can’t do foreign travel, it’s to say let’s be careful of the nature of that and where we’re actually doing business.

So the significance of Nexus? In short, this may mean you’re filing tax returns, other information returns, who knows what in this foreign jurisdiction on top of what you have to do for Canada. And perhaps you’re going to need to reconcile those so that quick vacation/business trip may be a lot more than you bargained for. For real estate investors, I think you’ve probably seen now that travel expenses are not quite as simple as what they otherwise may appear to be.

Final tips on claiming travel expenses for real estate investors

A last helpful tip, I’ve certainly recommended this many times, it’s not a hundred percent foolproof, but where you’re going, for example, to more of a resorty, nice place, any business, et cetera. And maybe you’re a little concerned, there may be some question marks as to the personal versus business component. Invite your accountant, I think this will help significantly. Please do subscribe. We’re trying to help you save taxes, build your legacy. Thank you.

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