Your Personal Finances

Home Ownership

Tax deductions can be like chocolate. The more the better - if we can get away with it. Sometimes Canadians misunderstand the rules around certain deductions. Landscaping comes to mind. Sometimes these costs are deductible, sometimes they're not.

The rulesOur tax law allows a deduction, under paragraph 20(1)(aa), for landscaping costs if you meet four conditions:

1. the deduction is claimed in the year the amount is actually paid by you,
2. the landscaping is for grounds around a building or other structure,
3. the building or other structure is owned by you at the time of the landscaping, and
4. the building or structure is used by you primarily for producing income from it, or from a business.

Now, what type of costs can you deduct?

Our tax law doesn't define "landscaping," but reading Interpretation Bulletin IT-296 gives some guidance. It suggests that virtually any costs will be allowed, as long as the work is being done with aesthetic considerations, rather than utility alone, in mind, and one of the principal objectives must be beautification of the area. The planting of trees, flowers, and shrubs are obviously deductible where you meet the four conditions. But you can also add the costs of laying sod, changing the contour or slope of the land, and fees paid to a landscape architect. Be aware, however, that the making of sidewalks or parking lots would not be considered deductible, but you may be able to claim capital cost allowance (CCA) for those costs. CCA is simply depreciation for tax purposes, which is effectively a deduction for the costs over time.

The insightIf we take a closer look at the four conditions above, some interesting thoughts come to mind. Thanks to Earl MacLeod in the Kitchener office of accounting firm Ernst & Young for these insights.

First, if your landscaping costs are not deductible because you don't meet the four conditions above, the costs will be treated as capital expenditures and can be added to the cost of the land (not the building) you own. Also, the costs are deductible only if they were actually paid in the year. You can't deduct amounts that are accrued but unpaid. It would seem that you could prepay your landscaping costs and claim a deduction, even if the work hasn't been done yet.

Next, you are required to own the building or structure around which you are doing the landscaping. So, if you are leasing, you won't be able to deduct your landscaping costs on the land, although they would be considered leasehold improvements, and you could claim a capital cost allowance on those amounts.

Finally, there's nothing in the tax law that says you must own the land that you're landscaping (although you must own the building or structure). In the case Toronto College Park Ltd. v. The Queen (1994), the taxpayer landscaped a park that it did not own. The court found that ownership of the land wasn't a requirement.

Now, happy (deductible) landscaping.