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
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.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.
A 2,000 square foot home has a 600 square foot basement suite. The year’s property tax is $5,000, home insurance is $1,800, and the suite’s own repairs cost $700.
| Expense | Calculation | Rental part |
|---|---|---|
| Rented share of the home | 600 รท 2,000 square feet | 30% |
| Property tax (whole home) | $5,000 ร 30% | $1,500 |
| Insurance (whole home) | $1,800 ร 30% | $540 |
| Repairs to the suite only | Rented area only, in full | $700 |
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:
| No CCA claimed | CCA claimed on the rented part | |
|---|---|---|
| Each year | No deduction for the building | A deduction that lowers net rental income (see the limit under Rental losses) |
| Principal residence status | One of the three conditions is met | The condition “You claim no capital cost allowance (CCA) on the property.” isn’t met, so the rented part is treated as changed to a rental |
| When you sell | The rented part can stay exempt if the other two conditions are met | The rented part’s gain is taxable, and the CCA can be recaptured |
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.
The principal residence exemption when you rent part of your home
Renting out a room or a suite in the home you live in doesn’t automatically cost you the principal residence exemption. Whether the whole home stays exempt depends on three conditions the CRA sets out; when they aren’t met, the rented part is treated as changed to a rental and only the home part of the gain is exempt. This page is part of the real estate tax hub.
Short Answer
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 Three Conditions
- 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.
The CRA’s line 12700 page words the first condition as rental or business use that is relatively small in relation to the home’s use as your principal residence. Its folio on principal residences gives examples that can meet all three: caring for children in the home as a business, renting one or more rooms, or an office in the home used for a business or employment. In those cases you report the income and can claim the expenses, other than CCA, for the part used to earn income.
When the Conditions Aren’t Met
The folio’s examples of a structural change: converting the front half of a house into a store, converting part of a house into a self-contained unit to rent out (a duplex, triplex and so on), and altering a house to make separate business premises.
In those cases you report the income and can claim a reasonable share of the expenses for the whole property, and capital cost allowance on the converted part.
What happens to the exemption:
| When | What happens |
|---|---|
| The use changes | You are considered to have sold the rented part, and reacquired it, at its share of the property’s fair market value. That year you can designate that part as your principal residence on Part 2 of Schedule 3 and page 2 of Form T2091(IND). |
| The use changes (alternative) | Since March 19, 2019, you can elect under subsection 45(2) that the deemed sale on a partial change in use doesn't apply. |
| You start claiming CCA later | The folio applies the deemed sale as of the time the rental use began. |
| You sell | If the conditions aren't met, when you sell you split the price and adjusted cost base between the home part and the rented part on a reasonable basis, such as floor area or number of rooms, and report the gain on the rented part. |
The gain on the rented part goes on line 13800 of Schedule 3. The building part is depreciable property, so this also applies: 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.
Splitting the Gain: an Example
The figures below are made up, and the rates come from data. The example follows the CRA’s own duplex example: the owner rented part of the home from the day it was bought, so there was no change in use, and the rented share is set by floor area.
A couple bought a home for $500,000 and from the start rented out a self-contained unit that is 40% of the floor area. They sell for $900,000, with no selling costs, and they claimed no CCA.
| Step | Calculation | Result |
|---|---|---|
| Total gain | $900,000 โ $500,000 | $400,000 |
| Gain on the rented part | $400,000 ร 40% | $160,000 |
| Gain on the home part (exempt if designated for every year) | $400,000 โ $160,000 | $240,000 |
| Taxable capital gain | $160,000 ร 50% inclusion rate | $80,000 |
In a real sale, the rented part’s price and cost are also divided between land and building, because the building part can produce recaptured CCA or a terminal loss, as in the CRA’s worked example.
Renting Out the Whole Home
Moving out and renting the entire home is a full change in use, covered in the guide to converting your home to a rental. In short:
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.Filing When You Sell
| Form | When |
|---|---|
| Schedule 3 | The year you sell (or are considered to have sold) the home, even when the whole gain is exempt |
| Form T2091(IND) | With Schedule 3, to designate the home and work out any gain to report |
| Form T776 | Each year you have rental income from the rented part |
If you forget to designate in the year of the sale, the CRA can accept a late designation in certain circumstances, with a penalty of the lesser of $8,000 and $100 for each complete month from the original due date (CRA).
Related Reading
Sources
The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Rental Income
- Canada Revenue Agency: Principal residence
- Canada Revenue Agency: Capital Gains โ 2025
- Canada Revenue Agency: Reporting the sale of your principal residence for individuals (other than trusts)
- Canada Revenue Agency: Accelerated investment incentive
- Canada Revenue Agency: GST/HST: Type of supply
- Canada Revenue Agency: Platform-based short-term accommodation: GST/HST for digital-economy businesses
- Canada Revenue Agency: Income Tax Folio S1-F3-C2, Principal Residence
- Justice Laws (Canada): Income Tax Regulations
- Justice Laws (Canada): Income Tax Regulations
- Justice Laws (Canada): Income Tax Act