Rental Income Tax Guide

Rental Income Basics

What Is Rental Income

• Rent payments from tenants
• Parking fees
• Laundry income
• Lease cancellation fees
• Any amounts tenant pays for you

Reporting

• Form T776 - Statement of Real Estate Rentals
• Attach to personal tax return
• Report gross income and expenses
• Net rental income added to other income

Deductible Expenses

Operating Expenses (100%)

• Property taxes
• Insurance
• Utilities (if you pay)
• Property management fees
• Advertising for tenants
• Legal and accounting fees

Maintenance and Repairs

• Minor repairs and maintenance
• Painting, cleaning
• Plumbing, electrical repairs
• Appliance repairs
• Snow removal, landscaping

Mortgage Interest

• Interest portion only (not principal)
• On loan used to buy rental property
• Significant deduction
• Track amortization schedule

Repairs vs Capital Improvements

Current Expense (Deductible Now)

• Restores property to original condition
• Routine maintenance
• Replacing parts (not whole systems)
• Examples: Patching roof, fixing furnace

Capital Expense (CCA Over Time)

• Improves property beyond original state
• Extends useful life significantly
• Replaces entire system
• Examples: New roof, new furnace, renovation

Grey Areas

• CRA looks at nature and extent
• Keep good documentation
• When in doubt, capitalize
• Professional advice for large amounts

Capital Cost Allowance (CCA)

What Is CCA

• Depreciation for tax purposes
• Building: Class 1 (4%)
• Furniture/appliances: Class 8 (20%)
• Optional—don't have to claim

CCA on Building

• Only building portion (not land)
• Typically 75-85% is building
• Class 1: 4% declining balance
• Reduces your cost base

CCA Recapture Warning

• When you sell, CCA claimed is "recaptured"
• Added to income in year of sale
• Taxed as regular income (not capital gain)
• Consider whether CCA is worthwhile

Rental Losses

Can You Have a Loss?

• Yes—if expenses exceed income
• Loss offsets other income
• Must have reasonable expectation of profit
• CRA may challenge perpetual losses

Loss Limitations

• CCA cannot create or increase loss
• Only current expenses create loss
• Carry forward CCA if needed

Reasonable Expectation of Profit

• Must intend to make profit
• Not just personal benefit
• Below-market rent to family: problematic
• Document business intent

Multiple Properties

Reporting Options

• Pool all properties on one T776
• Or separate T776 for each
• Losses on one offset income on others

Same Class Pooling

• Properties share CCA pool
• Selling one affects whole pool
• Strategic considerations

Principal Residence Conversion

Converting to Rental

• Deemed disposition at FMV
• May trigger capital gain
• Can elect to defer
• PR exemption preserved (up to 4 years)

Converting Back to PR

• Another deemed disposition
• May use PR exemption for some years
• Complex rules—get advice

Short-Term Rentals (Airbnb)

Tax Treatment

• Still rental income
• Report on T776
• Same deductions apply
• Platform fees deductible

GST/HST Considerations

• Short-term rentals (under 30 days): may need GST/HST
• Long-term residential: exempt
• $30,000 threshold applies
• Platform may collect for you

Principal Residence Impact

• May affect PR exemption
• Depends on usage and changes made
• Business use portion considerations

Record Keeping

Documents to Keep

• All expense receipts
• Rental agreements/leases
• Bank statements
• Mortgage statements
• Property tax bills
• Insurance documents

Track These Items

• Purchase price and costs
• Improvements (capital additions)
• CCA claimed each year
• ACB (adjusted cost base)

How Long to Keep

• 6 years from filing
• Property records: until 6 years after sale
• Digital records acceptable

Selling Rental Property

Capital Gain

• Selling price minus ACB
• 50% inclusion rate (first $250K/year)
• 66.67% inclusion (above $250K/year)
• No principal residence exemption

CCA Recapture

• If sell above UCC (undepreciated capital cost)
• Recapture taxed as regular income
• Not capital gain—no 50% inclusion

Terminal Loss

• If sell below UCC
• Can claim terminal loss
• Deductible against income

Co-Ownership

With Spouse

• Split income based on ownership %
• Or based on who contributed funds
• Attribution rules may apply
• Document ownership clearly

With Others

• Each reports their share
• Partnership rules may apply
• Get written agreement

Tax Planning Strategies

Timing Expenses

• Accelerate repairs to high-income years
• Defer if expecting higher income next year
• Year-end planning important

Mortgage Structure

• Keep rental mortgage separate
• Pay down personal mortgage first
• Rental interest is deductible

CCA Decision

• Claim if rental income positive
• Skip if losses or plan to sell soon
• Consider recapture implications