Renting out a basement or secondary suite in the home you live in turns part of your house into a rental while the rest stays your home. That mix is what makes a suite different from a separate rental property: you split expenses between the two parts, and how you set up and claim the suite can affect the tax-free status of your home when you sell. This page covers the homeowner’s side of a suite. The tenant’s side of renting is in the renting in Canada hub, and buying a separate property to rent is covered on becoming a landlord.
Reporting the income
Rent from a suite is rental income, reported on Form T776 with your personal return; extras the tenant pays you, such as for parking or laundry, count too. How to fill in the T776 and when the income is reported are covered step by step on how to report rental income. A deposit you hold, such as a security deposit, isn’t income while you are holding it to return; the deposit rules by province set how much you can collect and when it goes back.
Splitting expenses between the suite and your home
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.In practice:
- Shared costs, such as mortgage interest, property tax, home insurance and utilities you don’t meter separately, are deducted only for the suite’s share.
- Suite-only costs, such as repairs inside the suite, advertising it and screening tenants, are deductible in full.
- Not deductible: mortgage principal, the personal share of shared costs, and the value of your own labour. Improvements that last, such as a new kitchen in the suite, are capital costs rather than current expenses.
Which expenses CRA allows, and how current and capital costs differ, are on rental expenses you can deduct.
A 700 sq ft suite in a 2,800 sq ft house is 25% of the floor area, so the suite’s share of shared costs is that percentage.
| Expense | Whole home | Suite’s share |
|---|---|---|
| Mortgage interest | $20,000 | $5,000 |
| Property tax | $5,000 | $1,250 |
| Insurance | $1,800 | $450 |
| Utilities | $3,600 | $900 |
| Repairs inside the suite | $800 | $800 (100%) |
Total deductions: $8,400. With rent of $1,500 a month, gross rent for the year is $18,000 and net rental income is $9,600, added to your other income and taxed at your marginal rate.
Capital cost allowance and the principal residence exemption
You can claim capital cost allowance (CCA) on the suite’s share of the building and on appliances and furniture you supply, but for a suite in your own home the claim has a cost beyond recapture when you sell: it is one of the conditions for keeping the whole home tax-free.
Renting out part of your home keeps the whole home a principal residence only if the rental is ancillary to your use of it as a home, you make no structural change to it, and you claim no capital cost allowance on it; otherwise the rented part is treated as changed to a rental, and only the home part of the gain is exempt when you sell.The CCA classes and rates, and recapture on sale, are on CCA on a rental property; the exemption itself is on the principal residence exemption guide, and what happens when part of a home becomes a rental (including the subsection 45(2) election) is on turning your home into a rental.
Legal suites
Whether a suite is legal is set by your municipality’s zoning and the provincial building and fire codes, so the requirements depend on where you live. They commonly cover fire separation between units, smoke and carbon monoxide alarms, exit windows in bedrooms, ceiling height and a building permit for a new suite. An illegal suite can affect your home insurance and your ability to enforce the tenancy, so the home insurance policy and the city’s permit office are worth checking before renting.
The tenancy itself is governed by your province’s residential tenancy law, which sets the rules on rent increases, deposits, entry and ending a tenancy: see the BC, Ontario, Alberta and Quebec guides. In some provinces, a tenant who shares a kitchen or bathroom with the owner falls outside the tenancy act, which changes those rules.
Setting the rent
Comparable listings on rental sites in your neighbourhood are the usual starting point, adjusted for what your suite offers: a private entrance, included utilities, parking and laundry all add to what tenants will pay. City averages are on rent and vacancy data by city. Renting out part of the home you live in to offset a mortgage is also covered from the investor’s angle on house hacking.
Record keeping
Keep leases, rent records, receipts for expenses, mortgage interest statements and utility bills. CRA generally requires records to be kept for six years from the end of the tax year they relate to, and records that support CCA claims for as long as you own the property and six years after.
Related resources
Sources
The figures and rules on this page come from these sources, last checked against them between September 29, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Rental Income
- Canada Revenue Agency: Principal residence