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Renting to Family: Tax Implications in Canada

Updated

Renting to a relative is taxed like any other rental, with one difference that matters: the rent you charge decides whether a loss can be deducted at all. This page covers that rule, the cost-sharing case, the attribution rules for spouses and minors, GST/HST and the principal residence exemption. It is part of WealthNorth’s real estate tax guides; the general rules are in the landlord tax guide.

The rental loss rule

The CRA’s Guide T4036, Rental Income sets out when a rental loss can be deducted from your other income:

  • 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.

The test is what you would charge someone you don’t know, so it isn’t limited to relatives: a reduced rent for a friend works the same way.

The same unit with $28,000 a year of operating expenses, rented at two levels:

Rent you would charge a strangerReduced rent for a relative
Monthly rent$2,000$800
Rent for the year$24,000$9,600
Operating expenses$28,000$28,000
Rental loss before CCA$4,000$18,400
Can the loss be deducted from other income?Yes, if the conditions above are metNo: the loss comes from renting for less than you’d charge someone you don’t know

Capital cost allowance doesn’t change either column: 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.

Cost-sharing is not a rental

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.

Attribution rules

If you give or lend money or property to a family member, and the rent is earned on it, the attribution rules decide who is taxed on the rent and on a later gain. If you give or lend money or other property to your spouse or common-law partner, the income it earns is taxed to you, and so are capital gains when they sell it, while you are resident in Canada and still together; if you give or lend it to a child, grandchild, niece or nephew under 18, the income (but not capital gains) is taxed to you until the year they turn 18. The main exceptions are a loan at the CRA's prescribed rate with each year's interest paid within 30 days after the year ends, a transfer for fair market value, and living apart after the relationship breaks down. The full rules and their exceptions are in the attribution rules guide.

These rules are about who reports the income. They apply in addition to the rental loss rule above, which is about whether a loss can be deducted.

GST/HST

Residential rentals of one month or more are exempt. A long-term rental to a relative is treated the same as one to anyone else. Short stays are covered in Airbnb and short-term rental tax.

The principal residence exemption

A home can be designated as your principal residence for a year only if both of these conditions are met: You, your spouse or common-law partner, a former spouse or partner, or your child ordinarily lived in the home in the year (even a short stay can count). Only one home per family unit can be designated for a year.

Renting part of your home to a relative follows the same rule as renting it to anyone: 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 details are in the principal residence exemption with a partial rental and renting out part of your home.

If you move out and rent the whole home, the change-of-use rules apply: Turning your home into a rental is a deemed sale at fair market value, but you can elect under subsection 45(2) of the Income Tax Act not to be treated as having changed its use: you then can't claim capital cost allowance on it, you still report the net rental income, and you can keep designating it as your principal residence for up to four years (longer for some work relocations) as long as you designate no other home and stay resident in Canada. See converting a home to a rental property.

Selling a rental has its own rules: 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 sale is covered in capital gains on rental property.

Records

The T4036 asks landlords to support their expenses with invoices, receipts, contracts and other documents. With a relative as tenant, records of what was agreed and paid (a lease, rent receipts or bank transfers) also show the rent you actually charged, which is what the loss rule compares with the rent you’d charge someone you don’t know.

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.