Owning a rental property in Canada can be a great way to build wealth, but it also comes with important tax responsibilities. Whether you own one unit or a portfolio of properties, understanding how rental income is taxed — and what you can deduct — is key to maximizing your returns and avoiding CRA surprises.
1. Reporting Rental Income
In Canada, rental income must be reported on your personal tax return using Form T776 – Statement of Real Estate Rentals.
- Residential rentals are typically reported on a cash basis (you report income when you receive it).
- If you own the property with others, each co-owner reports their share of the income and expenses.
💡 Tip: Keep detailed records of rent received, even for partial months or security deposits applied to rent.
2. Common Deductible Expenses
The good news? Many of your rental property expenses are tax-deductible. This can significantly reduce your taxable rental income.
Common deductions include:
- Mortgage interest (but not the principal)
- Property taxes
- Utilities (if paid by you)
- Insurance premiums
- Repairs and maintenance (but not capital improvements)
- Property management fees
- Advertising costs
- Travel expenses for property management (within limits)
3. Capital Expenses vs. Repairs
One of the most common mistakes landlords make is claiming a capital improvement as a repair.
- Repairs: Keep the property in its original condition (deductible in the current year).
- Capital improvements: Add value or extend the life of the property (must be added to the property’s cost and depreciated over time through CCA).
Example: Repainting a room = repair. Replacing the roof = capital expense.
4. Claiming Capital Cost Allowance (CCA)
CCA allows you to deduct a portion of your rental property’s cost each year for wear and tear.
- CCA can help reduce taxes now, but it’s optional.
Warning: When you sell the property, the CRA will recapture any CCA claimed, adding it back to your taxable income. This is why some landlords skip CCA to avoid a large tax bill later.
5. GST/HST Considerations
- Long-term residential rentals are exempt from GST/HST.
- Short-term rentals (e.g., Airbnb) may require GST/HST registration if your revenue exceeds $30,000 annually.
6. Selling Your Rental Property
When you sell a rental property, you may face capital gains tax:
- 50% of the gain (selling price minus purchase price and selling costs) is taxable.
- If you previously claimed CCA, that amount is added back to your income in the year of sale (recapture).
7. Non-Resident Landlords
If you’re a non-resident earning rental income from Canadian property:
- Your tenant or property manager must withhold 25% of the gross rent for CRA.
- You can file Form NR6 to have tax withheld on net income instead.
Final Takeaway
Rental properties can be profitable, but tax rules for landlords are more complex than for regular homeowners.
- Keep organized records year-round
- Understand which expenses are deductible
- Plan ahead for capital gains and CCA recapture
📞 Need help with your rental property taxes? At MIMAKALI, we help Canadian landlords maximize deductions, stay compliant, and keep more of their rental income.