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.

Landlord tax checklist

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.

Rental expenses you can deduct

You can deduct reasonable expenses you incur to earn rental income, but when you deduct them depends on what they are: current expenses come off in the year you incur them, others are capital costs claimed over several years as capital cost allowance (CCA), and some can’t be deducted at all. This page goes through the CRA’s rules line by line as they appear on Form T776, Statement of Real Estate Rentals. It is part of WealthNorth’s guide to real estate taxes; for the form itself see how to report rental income, and for depreciation see CCA on rental property.

The rules here come from the CRA’s Guide T4036, Rental Income (T4036(E) Rev. 25), unless another source is named.

Current or capital?

Guide T4036 divides rental expenses into two kinds. Current expenses recur and give a short-term benefit, and you deduct them in the year you incur them; capital expenses, such as the cost to buy or improve the property, are claimed over several years as CCA. The CRA’s tests:

• An expense that gives a lasting benefit is usually capital; one that recurs after a short period, such as repainting, is usually current.
• A repair that improves the property beyond its original condition is usually capital; one that simply restores it to its original condition is usually current.
• Replacing a separate asset, such as a refrigerator, is capital; replacing a part of the building, such as its wiring, is usually current.
• A cost that is large compared with the property's value is usually capital, though that test alone doesn't decide it.
• Repairs to a used property you bought, to put it in a suitable condition to rent, are capital.
• Repairs made in anticipation of selling the property, or as a condition of the sale, are capital.
• Whether the expense raises the property's market value is not a major factor.

The examples the guide itself gives:

Two special cases in the guide: you can deduct eligible disability-related modifications to a building (such as ramps, hand-activated door openers, or changes to a bathroom, elevator or doorway) in the year you pay for them instead of adding them to the building’s cost; and costs such as interest, legal and accounting fees and property taxes during construction or renovation (soft costs) may be deductible or may have to be added to the building’s cost, depending on the period they relate to.

Expenses you can deduct, by T776 line

Interest and financing costs

The CRA’s interest rule, which decides whether interest is deductible at all: 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.

For financing costs, T4036 sets these timing rules:

• Fees to get a mortgage or loan to buy or improve the rental. Loan fees include mortgage application, appraisal, processing and insurance fees, mortgage guarantee fees, mortgage brokerage and finder's fees, and legal fees related to the mortgage financing. They are deducted over five years, 20% in the year and 20% in each following year, whatever the term of the loan. If you repay the loan before the end of that period, you deduct the remaining fees in the year you repay it.
• A lump-sum interest payment, a fee to lower the rate, or a penalty to pay off the mortgage early is prorated over the rest of the original term of the mortgage or loan, not deducted in full in the year paid.
• Mortgage principal is not deductible.
• You can choose to treat financing fees and interest on money borrowed to acquire depreciable property as capital, adding them to its cost.

Vehicle and travel costs

Guide T4036 allows motor vehicle expenses (line 9281) and travel (line 9200) only under these conditions:

• With one rental property, it is in the general area where you live.
• With one rental property, you do some or all of the repairs and maintenance yourself and use the vehicle to carry tools and materials to the property.
• With one rental property, driving to collect rent is a personal expense and can't be deducted.
• With two or more rental properties, you can also deduct vehicle costs to collect rent, supervise repairs and manage the properties, whether or not they are in the general area where you live.
• For the two-or-more rule, the properties have to be at two or more different sites, away from your principal residence.
• Only a reasonable amount is deductible, which depends on your circumstances.
• Other travel to a rental property follows the same conditions, and board and lodging are personal expenses.

Prepaid expenses

Other deductible costs

• Condominium fees: your share of the upkeep, repairs, maintenance and other current expenses of the common property.
• Landscaping: deductible only in the year you pay for it, even under the accrual method.
• Lease cancellation payments: amounts paid to a tenant to cancel a lease are deducted over the days left on the lease, using T4036’s formula.
• Telephone: long-distance calls for the rental, or the basic rate of a separate line used for it; not the basic monthly rate of your home phone.

Expenses you can’t deduct

Short-term rentals face a further limit: 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.

Capital costs: claimed as CCA

The purchase price of the building, the legal fees and other costs of buying it, and the furniture and equipment you rent with it are capital expenses. Furniture, household appliances and other equipment used in the rental are Class 8, at 20%. Land isn't depreciable: only the building's share of the price, and of the buying costs, goes in a class. CCA has its own limit: 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. The rates, the first-year rules and a worked schedule are in CCA on rental property, and how CCA claimed now is treated when you sell is in undepreciated capital cost.

Renting 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. The full rules are in renting out part of your home.

Claiming CCA on the rented part can affect 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.

Renting to family or below market

Renting to family covers the rest of the rules for that situation.

Records

T4036 says to keep invoices, receipts, contracts and other documents supporting your purchases and operating expenses, and warns that the CRA may disallow expenses you can’t support. Keep records for six years from the end of the last tax year they relate to.

Rental income tax calculator

Enter your rents, expenses and other income to see how much income tax a year of rental income adds, or how much a rental loss saves. The tax comes from the same federal and provincial model as WealthNorth’s income tax calculator, including the basic personal amounts, the Ontario surtax and Health Premium. It is part of the real estate tax guides; the rules behind each input are in the landlord tax guide.

How the calculator works

1. Net rental income before CCA is gross rents minus deductible expenses (line 9369 of Form T776).
2. Capital cost allowance is taken off next, but only down to zero: 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.
3. The tax is your income tax with the net rental income added to your other income, minus your income tax without it.
4. A loss is deducted from your other income, which lowers your tax. That assumes the loss is deductible: 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.

Example: extra tax on $10,000 of rental income in Ontario

“Tax” here is federal plus Ontario income tax, including the Ontario surtax and Health Premium, with basic credits only: the pension income amount, the age amount and the OAS recovery tax aren’t modelled, so the figures don’t fit someone whose other income is a pension or who is 65 or older. The calculator above runs the same comparison for any province and for employment income.

Expenses the calculator expects

The expenses box is for deductible operating expenses: advertising, insurance, mortgage interest, professional and management fees, repairs and maintenance, property taxes, utilities you pay and similar costs. Two rules decide what goes in it:

• 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.
• 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.

Mortgage principal, the value of your own labour and the cost of land aren’t deductible. Each expense 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. Claiming it lowers this year’s tax and the building’s undepreciated capital cost (UCC). When you sell: If the proceeds from the property you sell are more than the undepreciated capital cost (UCC) of its class, the difference is recaptured CCA, added to your income in full rather than at the capital gains inclusion rate. The calculation and the trade-offs are in CCA on rental property; the tax on a sale is in capital gains on rental property.

Reporting the result

The rents, expenses and CCA go on Form T776, Statement of Real Estate Rentals, and the net income or loss on line 12600 of your return. The steps are in how to report rental income.

Renting to family

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.

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

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.

Related pages

• When mortgage interest is tax-deductible
• Capital gains on rental property
• How to report rental income (T776 guide)
• Airbnb rules by city
• Real estate taxes in Canada
• Notice of Assessment (NOA)
• Basic Personal Amount Canada
• Vehicle Expenses for the Self-Employed in Canada
• OAS Clawback Guide
• Land Transfer Tax Calculator Canada
• GST/HST on Freelance Income in Canada
• QPIP