Rental Income Tax in Canada: What Every Landlord Needs to Know

Rental Income Tax in Canada: What Every Landlord Needs to Know

If you earn rental income in Canada, you need to report it on your tax return. The good news: you can deduct a wide range of expenses against that income. The bad news: getting it wrong can lead to reassessments and penalties.

Reporting Rental Income

Report gross rental income and expenses on Form T776 (Statement of Real Estate Rentals). If you co-own the property, each owner reports their share.

What You Can Deduct

Current expenses (deductible in full)

• Property management fees
• Advertising for tenants
• Insurance
• Property tax
• Mortgage interest (not the principal portion)
• Utilities (if you pay them)
• Repairs and maintenance
• Legal and accounting fees
• Office supplies for managing the rental

Capital expenses (depreciated over time)

• Appliances, furniture, and equipment
• Major renovations and improvements
• The building itself (CCA Class 1, typically 4% per year)

Note: claiming CCA (Capital Cost Allowance) on a rental property can reduce your principal residence exemption if the property was ever your home. Get advice before claiming CCA.

Repair vs Improvement

CRA distinguishes between repairs (deductible now) and improvements (capital, depreciated over time):

• Repair: Fixing a broken furnace, patching a roof leak, repainting
• Improvement: New furnace, new roof, kitchen renovation, adding a deck

The test: did it restore the property to its original condition (repair) or make it better than before (improvement)?

Rental Loss

If your expenses exceed your rental income, you have a rental loss. This loss can offset other income on your return, reducing your overall tax. But CRA may question losses that persist for many years, so ensure there’s a reasonable expectation of profit.

GST/HST on Rental Income

Long-term residential rent is exempt from GST/HST. You don’t charge it and can’t claim input tax credits on related expenses. Short-term rentals (less than 30 continuous days) are generally taxable. If your short-term rental revenue exceeds $30,000, you must register for GST/HST.

Short-Term Rentals (Airbnb)

CRA treats short-term rental income the same as other rental income. Report it, deduct eligible expenses, and be aware of the GST/HST threshold. Platforms like Airbnb now share host data with CRA.

5 Tips for Landlords

1. Keep detailed records. Separate bank account for rental income/expenses is ideal.
2. Track capital vs current expenses. Misclassifying leads to reassessments.
3. Claim mortgage interest, not principal. Only the interest portion is deductible.
4. Be careful with CCA. Especially if the property was ever your principal residence.
5. File Form T776 accurately. CRA cross-references rental income against property records and mortgage data.

Need help with rental income reporting? Book a free consultation with FinGems.