How Rental Income Is Taxed in Canada: A Landlord Tax Guide (2026)

This page explains how rental income is taxed and reported in Canada: what counts as income, which expenses are deductible, how depreciation and rental losses work, three worked scenarios, and the planning points landlords use. It is part of WealthNorth’s guide to investment property financing. The taxes hub covers related rules in more depth, including rental property expenses you can deduct and renting out part of your home.

How rental income is taxed

Net rental income (rent minus deductible expenses) is ordinary income: it is added to your employment and other income and taxed at your combined federal and provincial marginal rate. There is no special rate for rent. At a 30% marginal rate, $15,000 of net rental income adds about $4,500 of tax; the marginal tax rate calculator shows the rate for your province and income. A rental loss from operating expenses can generally be deducted against your other income.

Reporting rental income: the T776 form

All rental income and expenses are reported on Form T776: Statement of Real Estate Rentals, which you attach to your T1 personal tax return.

T776 structure

Your net income or loss is then carried to your T1 return. If you own more than one rental property, you combine the net income or loss from all of them before claiming CCA.

Co-ownership

If you co-own a rental property (with a spouse, family member, or business partner), each owner reports their proportional share of income and expenses based on their ownership percentage, and lists the other owners in Part 2 of Form T776.

Eligible rental expenses

Current expenses (deductible in the year incurred)

Capital expenses (not immediately deductible: depreciated via CCA)

Repairs vs. improvements, the critical distinction

The CRA’s Guide T4036 sets tests for whether an expense is current or capital. A rental expense that only restores the property to its original condition is usually a current expense, deducted in the year you pay it; one that improves the property beyond its original condition, extends its life, gives a lasting benefit or replaces a separate asset is usually a capital expense, added to a CCA class instead. The full list of tests is in rental expenses you can deduct.

In practice, many items fall in a grey zone: document your reasoning.

Capital cost allowance (depreciation)

Capital cost allowance (CCA) lets you deduct part of the cost of the building (never the land), furniture and appliances each year. It is optional, and it can reduce net rental income to zero but can’t create or increase a rental loss. What you claim is recaptured as ordinary income when you sell for more than the undepreciated cost, so claiming it mostly defers tax rather than saving it. The classes, first-year rules and schedules are in the taxes hub’s CCA guide and CCA depreciation calculator; whether an investor should claim it is covered in should you claim CCA on a rental.

Rental income scenarios

Scenario 1: Dedicated rental property

$400,000 property renting for $2,200/month (illustrative)

Without CCA, you report $1,588 of income. Claiming $1,588 of CCA brings it to zero, and the rest of the year’s CCA room stays in the class for later years. If operating expenses alone had exceeded the rent, the loss could be deducted against other income, but no CCA could be claimed that year.

Scenario 2: Room rental in your principal residence

Renting part of the home you live in changes how expenses are deducted. When you rent out part of the home you live in, you deduct the expenses that relate only to the rented area in full and a share of the expenses for the whole property, split by square metres or by the number of rooms you rent. The full rules are in renting out part of your home.

Renting one room (15% of home) for $1,000/month

This $7,260 is added to your other income and taxed at your marginal rate.

Principal residence caution: the CRA treats the whole home as your principal residence, despite renting part of it, only when all of these conditions are met:

• The rental use is ancillary to the main use of the property as your home.
• You make no structural change to the property.
• You claim no capital cost allowance (CCA) on the property.

Claiming CCA on the rented room breaks the last condition, so part of the home can lose the exemption.

Scenario 3: Basement suite

Legal basement suite (30% of home) renting for $1,500/month

Tax strategies for landlords

1. Track every expense

Keep receipts and records for everything. A $50 plumbing repair or $30 in advertising is deductible. Over a year, small expenses add up to thousands in deductions.

2. Time repairs strategically

Repairs are deducted in the year you incur them, so the timing of discretionary work decides which year’s income the deduction reduces; the deduction is worth more in a year your marginal rate is higher.

3. Split rental income with a spouse

If your spouse co-owns the property: A co-owner's share of the rental income or loss depends on their share of ownership. Giving or lending property to a spouse doesn’t shift the income, though, under the attribution rules in section 74.1 of the Income Tax Act: Income or loss from property you transfer or lend to your spouse or common-law partner (or someone who later becomes one) is taxed to you for the time you are resident in Canada and they are your spouse or partner. How the purchase was funded matters, so get advice before changing title.

4. Maximize the principal residence exemption

If you live in part of the property (owner-occupied with a suite), claiming CCA on the rental portion can cost you part of the principal residence exemption on sale, which is why many landlords in that position don’t claim it.

5. Understand what incorporation does and doesn’t do

Rental income earned in a corporation is usually passive investment income, taxed at a high corporate rate with part refunded when dividends are paid; it doesn’t qualify for the small business rate unless the rental business has more than 5 full-time employees. Incorporation can still help with liability, estate planning or large portfolios, at extra cost; see real estate investing in a corporation.

6. Claim vehicle expenses for property management

The CRA’s Guide T4036 limits vehicle expenses for a rental. Vehicle costs for a rental are deductible only in limited cases: with one rental property, only if it is in the general area where you live and you do repairs or maintenance yourself and drive tools and materials there (driving to collect rent is a personal expense); with two or more rental properties at two or more different sites away from your home, also to collect rent, supervise repairs and manage the properties. Other travel to a rental follows the same conditions. Each condition is set out in rental expenses you can deduct.

What you deduct is the rental-use share of your actual vehicle costs; the CRA’s per-kilometre allowance rates are for employers reimbursing employees, not a deduction method for landlords.

Keep a logbook of rental trips to support the claim.

Common mistakes landlords make

CRA limits on rental claims

The CRA’s rental income guide sets these limits.

Rental losses. You can deduct a rental loss from your other income subject to these conditions:

• You can deduct a rental loss from your other income only if you incurred the expenses to earn income.
• If you lose money because you rent to someone you know for less than you would charge someone you don't, you can't claim the loss.
• Renting to a relative at the rate you'd charge other tenants, expecting a profit, still lets you claim a loss.
• A small amount that a family member or someone else living with you pays toward upkeep or groceries is cost-sharing, not rent: you don't report it and can't claim rental expenses or a loss.
• You can't claim the expenses of renting part of your home if you have no reasonable expectation of making a profit.
• If your rental expenses are consistently more than the rent, the loss may be denied because the rental isn't considered a source of income.

Capital cost allowance. Capital cost allowance (CCA) is optional and is worked out after combining the net income or loss of all your rental properties: it can bring that net rental income down to zero, but it can't create or increase a rental loss.

Current versus capital expenses. An improvement can’t be deducted as a repair; the tests are under repairs vs. improvements above.

Short-term rentals. For a short-term rental (rented or offered for rent for less than 90 consecutive days), expenses and capital cost allowance for the days it doesn't comply with provincial or municipal rules (it isn't permitted at that location, or it lacks a required registration, licence or permit) can't be deducted. The non-compliant amounts go on lines 9366 and 9367 of Form T776.

Record retention: Keep all rental records, including receipts, bank statements, leases and T776 forms. The CRA says to keep your records for six years from the end of the last tax year they relate to (unless it lets you destroy them earlier), at your Canadian residence or place of business unless it allows another place; you are responsible for them even when a bookkeeper or accountant keeps them, and you must make them available to the CRA on request.

Related pages

• When mortgage interest is tax-deductible
• Capital gains on rental property
• How to report rental income (T776 guide)
• Airbnb rules by city