Renting Out Part of Your Home in Canada: Tax Rules

Renting out a basement suite or a spare room in the home you live in makes you a landlord for tax purposes: you report the rent, deduct a share of the home’s costs, and need to know how the rental affects the principal residence exemption when you sell. This page covers each piece. It is part of the real estate tax hub.

Rental Income or Business Income

Rental income goes on Form T776, filed with your return: gross rents on line 12599 and net rental income (or loss) on line 12600. The guide to reporting rental income goes through the form.

Splitting Expenses Between You and the Rental

• Expenses for the whole property, such as property tax and insurance, are split between your personal part and the rented area, using square metres or the number of rooms you rent.
• Expenses that relate only to the rented area, such as repairs to the rented rooms, are deductible in full.
• If you rent rooms to a lodger or roommate, you can also claim part of the costs of rooms you share with them, based on factors such as availability for use or the number of people sharing.

On Form T776, you enter the full amount of each expense under “Total expenses” and the part that was for your personal use under “Personal portion of total expenses”.

The figures below are made up; the method is the CRA’s.

What You Can Deduct

The CRA’s Guide T4036 has an expense line for each of these, among others: advertising, insurance, interest and bank charges, professional fees, management and administration fees, repairs and maintenance, property taxes, and utilities. For a suite in your home, the whole-home ones are split as above. The rental expenses guide covers each line.

Repairs or improvements. 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.

Appliances and furniture for the tenant. Furniture, household appliances and other equipment used in the rental are Class 8, at 20%.

Rental Losses

• You can deduct a rental loss from your other income only if you incurred the expenses to earn income.
• 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.

If CCA is claimed: CCA can reduce your net rental income to zero but can't create or increase a rental loss.

The Principal Residence Exemption

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 CRA’s folio gives renting one or more rooms in the home as an example that can meet the three conditions; converting part of a house into a self-contained unit to rent out is its example of a structural change.

The partial rental guide has each condition and shows how the gain is split when they aren’t met.

Claiming CCA on the Rented Part

CCA is optional, so the choice is a trade-off:

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. The CCA guide has the classes and rates.

GST/HST

Residential rentals of one month or more are exempt. Short stays are different: 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. The short-term rental tax guide covers renting a suite by the night.

Local Rules and Insurance

Whether a suite can be rented at all is set locally: zoning, building and fire codes, and in some places a licence or registration, depend on the municipality and province. A short-term rental that isn’t permitted at its location, or lacks a required registration, licence or permit, has a tax consequence too: 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.

Home insurance policies have their own terms about rental use, so the insurer is the one to confirm whether a tenant in the home is covered. In British Columbia, the speculation and vacancy tax guide covers who pays that tax.

Related Reading

• Principal residence exemption when you partly rented your home
• Converting your home to a rental property
• Renting to family: tax implications
• Principal residence exemption: complete guide
• Real estate tax hub