Landlord Tax Guide Canada: Rental Income, Expenses, CCA and Selling

This page is an overview of the tax rules a Canadian landlord deals with, from reporting the rent to selling the property, with links to the page in WealthNorth’s real estate tax guides that covers each step in detail. The rules come from the CRA’s Guide T4036, Rental Income unless another source is named.

Rental income or business income

Guide T4036 and Form T776 are for income from property. Whether a rental is property income or a business depends on the services you provide: Renting space with only basic services (heat, light, parking, laundry facilities) is rental income; providing additional services such as cleaning, security and meals may make it a business, and the more services you provide, the more likely it is. A rental that is a business is reported with the self-employment rules in Guide T4002 instead. Short-term rentals have their own rules, covered in the Airbnb and short-term rental tax guide.

What you report and where

Rental income is reported for the calendar year: all rental properties have a December 31 year-end. Rental income is usually calculated with the accrual method: rent is reported in the year you earn it, whenever you receive it, and expenses are deducted in the year you incur them. You can use the cash method (rent when received, expenses when paid) only if you have almost no amounts receivable and no expenses outstanding at the end of the year, and your net rental income or loss would be almost the same under the accrual method. Rent paid in goods or services counts too, at its fair market value. The line-by-line steps are in how to report rental income on Form T776.

The person who owns a rental property reports its income or loss, and a co-owner's share depends on their share of ownership: each co-owner enters the gross rents of the whole property on line 12599 of the return, lists the other co-owners in Part 2 of Form T776, and reports their own share of the net income. If the rent is earned on money or property you gave or lent to your spouse or common-law partner, or to a family member under 18, the attribution rules can tax that income to you; see renting to family.

Deductible expenses

You can deduct reasonable expenses you incur to earn rental income. The T776 has lines for advertising, insurance, interest and bank charges, office expenses, professional fees, management and administration fees, repairs and maintenance, salaries, property taxes, travel, utilities, motor vehicle expenses and other expenses. Three of the rules that decide what you can deduct:

• 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.
• Interest. Interest is deductible when the borrowed money is used to earn income from a business or property, such as rent, interest or dividends, whatever secures the loan; it follows the money's current use, which you must be able to trace, and it isn't deductible on money used personally, on money borrowed for an RRSP, TFSA or FHSA contribution, or on an investment that can only produce capital gains.
• Part of 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.

You can’t deduct mortgage principal, the value of your own labour, or the land transfer tax you paid to buy the property (it is added to the property’s cost). Fees to get a mortgage or loan to buy or improve a rental property, such as application, appraisal, processing and insurance fees, guarantee fees, brokerage and finder's fees and legal fees for the financing, are deducted over five years, 20% a year, whatever the term of the loan; if you repay the loan sooner, you deduct what is left then. Each expense line and its conditions are covered in rental property expenses you can deduct.

Capital cost allowance

Most rental buildings bought after 1987 are Class 1, depreciated at 4% a year on a declining balance, and furniture and appliances are Class 8 at 20%; land isn't depreciable. In the year you buy, the half-year rule generally limits the claim to half of your net additions to a class, but it doesn't apply to property that qualifies for the accelerated investment incentive (acquired after November 20, 2018 and before 2025) or the reaccelerated incentive (acquired after 2024), as a rental building bought from a seller you deal with at arm's length usually does. 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.

Because land isn’t depreciable, the purchase price is split between land and building, and fees for buying the property are split in the same proportion: the T4036 formula is (building value ÷ total purchase price) × fees.

How the claim is calculated, and the trade-offs of claiming it, are covered in CCA on rental property and undepreciated capital cost.

Rental losses

You have a rental loss when your rental expenses are more than your gross rents. Whether you can deduct it from your other income depends on why you incurred the expenses. A rental loss can be deducted from your other income only if you incurred the expenses to earn income: you can't claim one when you rent to someone you know for less than you'd charge a stranger, when a family member or housemate only shares costs, or when renting part of your home has no reasonable expectation of profit. The full rules are in how rental income is taxed.

Renting to a relative or friend at a reduced rent is covered in renting to family: tax implications.

Selling a rental property

When you sell a rental building for more than its undepreciated capital cost (UCC), the difference, counting the sale price only up to the building's original cost, is recaptured CCA and added to your income in full; a sale above the original cost is also a capital gain, and if no property is left in the class and some UCC remains, that remainder is a terminal loss you deduct. Capital gains are included in income at 50%. If the property was your home for some of the years you owned it, the principal residence exemption can cover those years; a home sold soon after you bought it can fall under the residential property flipping rule. The full calculation, with worked examples, is in capital gains on rental property, and turning your home into a rental (or back) is in converting a home to a rental property.

GST/HST on rent

Stays of less than one month that cost more than $20 a night are taxable for the GST/HST (long-term residential rentals are exempt): a host registered for the GST/HST charges it on their own stays, and for hosts who aren't registered, a platform such as Airbnb charges and collects it on the stays it books. A separate income tax rule covers short-term rentals that break local rules: 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.

Records

The T4036 asks landlords to support their purchases and operating expenses with invoices, receipts, contracts and other documents, and says the CRA may not allow expenses you can’t support. You don’t send the records with your return. How long to keep them: Keep records for six years from the end of the last tax year they relate to.

Holding rentals in a corporation

Rent a corporation earns is taxed as investment income, not at the small business rate, unless it has enough employees: A corporation whose business is mainly earning rent or other income from property has a specified investment business, so that income is taxed as investment income rather than at the small business rate, unless it employs more than 5 full-time employees in the business throughout the year (or an associated corporation provides services that would otherwise need that many). The trade-offs are covered in incorporating as a real estate investor.

Related reading

• How to report rental income (Form T776)
• Rental income tax calculator
• Renting out part of your home
• How rental income is taxed (investment property guide)
• Real estate tax guides