T776 Rental Expenses: Which Line Each Cost Goes On

Which T776 line does each rental cost go on?

Each rental cost goes once on the Part 4 line named for what the cost is. The CRA's list of rental expenses you can deduct and the T776 form give thirteen lines.

Capital purchases do not go on these lines. The form lists them in its additions areas instead (equipment, building and land), and capital cost allowance (CCA) is claimed on the depreciable ones; land gets no CCA. These are federal T776 lines from the latest form the CRA has posted; check the form for the year you file. The CRA pages do not name snow removal, cleaning or pest control. A cost of earning the rent that fits no line above goes on 9270. A Quebec owner also files Revenu Québec's Form TP-128-V, which has its own layout, so match each cost to its lines separately.

A case is not simple when you own more than one property, part of the property is your home (a room, a suite, short stays), the mortgage was refinanced, a repair may be an upgrade, a condo sent a special charge, personal and rental money share one account, or earlier years were never filed. Settle these lines before you file; see "Different for you?" at the end. Gather the bank and mortgage statements, condo statements, property tax bill, insurance bills, invoices and the lease before you assign lines.

Can a landlord deduct condo fees, and on which line?

Condo fees go on line 9270, Other expenses, to the extent they are your share of the upkeep, repairs, maintenance and other current expenses of the common property (CRA: Rental expenses you can deduct; T4036). The CRA also says the expenses usually deducted from rental income apply to a condo unit, so the other lines in the table apply to it too.

The CRA's rental pages say nothing about reserve-fund contributions or special assessments. T4036 refers to Interpretation Bulletin IT-304, Condominiums for more, which the CRA has archived and no longer updates. This page states no treatment for either. If the condo statement shows one, keep the notice that says what it pays for and read repair or capital cost; a charge you cannot place is a case for individual tax help.

Which part of a rental mortgage payment is deductible?

Interest on money borrowed to buy or improve the rental is deductible, on line 8710. The principal part of each payment is not deductible (T4036). Interest on money borrowed for other rental costs may also qualify, depending on how the money was used (Income Tax Act, paragraph 20(1)(c)). Split each payment using the lender's statement or amortization schedule, and record the principal as a loan repayment, not an expense. Interest, property tax and related fees for a period of construction, renovation or alteration of a building may have to be added to its cost instead, and any current deduction is limited to the rental income from the building (CRA: Construction soft costs; Income Tax Act, subsection 18(3.1) and subsection 20(29)).

• Refinancing: if the funds are for personal use, the extra interest is not deductible. If you refinance to get money for a business or other investments, the CRA says you may be able to claim that interest elsewhere on the return, not on the T776. See interest on borrowed money for a rental.
• Loan fees: fees to arrange the mortgage (application, appraisal, processing and insurance fees, guarantee fees, brokerage or finder's fees, and legal fees for the financing) go on 8710 and are deducted over 5 years, whatever the loan term. If you repay the loan early, the remaining fees may be deductible then, but the Act excludes a repayment made as part of a series of borrowings or other transactions and repayments, so check a refinance or replacement loan before claiming the balance (paragraph 20(1)(e)).
• Lump-sum interest: a lump sum paid for interest, or a fee to reduce the mortgage rate, is not deducted in full in the year paid. It is spread over the rest of the original term of the loan.
• Interest paid to tenants on rental deposits also goes on 8710.

Where do property tax, insurance and utilities go, and for which months?

Each goes on its own line, and only for the period it relates to (CRA: Rental expenses you can deduct).

Where do property manager, rent-collection, legal and accounting fees go?

A fee goes on the line for the service it paid for (CRA: Rental expenses you can deduct).

The CRA lists a finder's fee under advertising and agents who find tenants under management fees, and does not say which applies to a fee for finding a tenant. If an invoice fits both, ask your preparer which to use. The CRA describes a preparer's fee in more than one place, and a fee is claimed once; see accountant fees for a rental return.

Is a repair deductible, or is it a capital cost?

Labour and materials for minor repairs and maintenance go on line 8960. A repair that is capital in nature cannot be deducted, though you may claim CCA (T4036). The CRA's current or capital tests ask whether the work gives a lasting benefit, whether it restores or improves the property, and whether it replaces a part or a separate asset.

The CRA's examples: repairing wooden steps or painting a wooden house's exterior is current. Vinyl siding on a wooden house, concrete steps in place of wooden ones, and a refrigerator for the rental are capital. So are repairs to used property bought to put it in suitable condition for use, and repairs made in anticipation of a sale or as a condition of sale, even though the same work would otherwise be current. A large bill for ordinary maintenance that was not done when it was needed is still a maintenance expense.

Capital items are listed in the form's equipment (Area B), building (Area C) or land (Area F) areas, not in Part 4. For the full tests, see repair or capital cost; for claiming allowance, see whether to claim CCA on a rental.

Which rental costs can I not claim?

Several costs that look like rental costs are not deductible, whatever line you try (T4036).

Car and travel costs. With one rental property, motor vehicle expenses to collect rent are personal. Line 9281 allows vehicle costs with one property only if all three hold: it is your only rental and is in the general area where you live, you do some or all of the repairs yourself, and the vehicle carries tools and materials to it. With two or more rental properties at different sites away from your principal residence, reasonable vehicle costs to collect rents, supervise repairs and manage the properties can be deducted, with receipts. Keep a log of the kilometres driven for the rentals and the total kilometres for the year; if the vehicle is also used personally, only the part of the costs paid to earn income is deductible, and a limit applies to passenger-vehicle interest. The CRA applies the same requirements to travel costs on line 9200 (CRA: Rental expenses you can deduct).

How do I enter a cost that is partly personal?

Enter the full cost in the Total expenses column and the personal share in the Personal portion column. The personal column totals to line 9949, and deductible expenses are the total minus line 9949 minus line 9366 (T776 form; T4036).

• Rent part of your home: split shared costs, such as property tax and insurance, by square metres or by number of rooms you rent. The CRA says expenses that relate only to the rented rooms, such as their repairs and maintenance, are deductible in full, with no personal portion.
• Space rented part of the year: the CRA's sharing economy page, written for short-term rentals, gives a reasonable basis for the rental share: the area of the available rental space divided by the home's total area, times the share of days in the year it was rented, times the cost. Enter the rest of the cost as the personal portion (CRA: Sharing economy).
• No reasonable expectation of profit: the expenses of renting part of your property cannot be claimed.
• Short stays: the form adds a short-term rental column (line 9365) and Chart A for the non-compliant amount of expenses (line 9366), which cannot be deducted. See Airbnb as rental or business income and GST/HST on short-term stays.
• A suite in your own home: see splitting suite expenses.
• Co-owners: line 9949 holds the personal portion for all co-owners. See co-owned rentals.

In which period do I record rent and costs?

In most cases, record rent in the period you earn it, whenever it is paid, and record an expense in the period you incur it, whenever you pay (T4036). This is the accrual method. The CRA allows the cash method, counting rent when received and costs when paid, only if you have almost no amounts receivable and no expenses outstanding at year-end, and your net rental income or loss would be almost the same under the accrual method.

A payment to a tenant to cancel a lease is not deducted all at once: the CRA spreads it over the days left on the lease, so keep the lease and the cancellation agreement. Two more traps follow. Under the accrual method, a prepaid expense is claimed in the years you get the benefit. Landscaping the grounds is deducted only in the year you paid it, even under the accrual method (CRA: Rental expenses you can deduct). For rent, see how rental income is taxed.

How do I set up a spreadsheet or books so each transaction carries its T776 line?

Give every transaction a T776 line when you record it, so the year-end totals are a sum, not a rebuild. Whether you use a spreadsheet or accounting software, create one row or one account per line in the table above.

Put rent in the same sheet on line 8141 (gross rents), one row per property and rent period, so rent earned but unpaid at year-end under the accrual method is counted. Keep the payment date in the note and match each receipt to its rent row, so rent is not counted twice and the sheet still reconciles to the bank. A summary that totals Amount by property and T776 line is what you copy onto the form. Record a mortgage payment as two rows: interest on 8710 and principal to the loan balance, not to an expense line. Bank charges on the rental account belong with 8710, the line titled Interest and bank charges; the CRA pages give no more detail on them. Paying rental costs from a separate account, where you can, leaves fewer personal-or-rental decisions at year-end. For the wider question, see doing your own books or hiring a bookkeeper.

What do I keep, and for how long?

Keep invoices, receipts, contracts, the lease and the supporting documents behind each row. Do not send them with the return. Generally, keep them for six years from the end of the tax year they relate to (T4036). The Income Tax Act sets the same rule.

The period can start later or run longer: a late return, an open objection or appeal, and records of buying, improving or selling the property, which the CRA says to keep indefinitely (CRA: How long to keep your records). See how long to keep business records for the dates.

Example

These examples are illustrative and in Canadian dollars.

A rented condo

A condo is rented for C$24,000 a year. The lender's year-end statement shows C$16,200 of interest and C$9,000 of principal on payments of C$25,200 (C$2,100 a month). Interest goes on line 8710; the C$9,000 of principal is a loan repayment, not an expense. Condo fees of C$450 a month, C$5,400 for the year, go on line 9270 as current common-property costs. Interest shrinks as the balance falls, so use the lender's statement, not twelve equal splits.

Tax, insurance, a repair and a new stove

Property tax of C$3,600 goes on 9180, insurance of C$900 on 8690 and a plumber's C$1,200 visit on 8960: C$5,700 in Part 4. A new stove for C$4,000 is a separate asset, like the CRA's refrigerator example. It is capital, so it goes in the CCA equipment area, not on a Part 4 line.

Three of ten rooms rented

An owner rents 3 of the 10 rooms in a home. Whole-home property tax and insurance of C$6,000 go in the Total column in full, and 7 of 10 rooms, C$4,200, goes in the Personal portion column. Line 9949 is then C$4,200, and deductible expenses are C$1,800.

Different for you?

• Your first T776, a spreadsheet that mixes personal and rental money, or a preparer's totals that do not match the bank: these are the cases to settle line by line before you file. See individual tax and bookkeeping.
• A condo special assessment, a reserve-fund charge or a major repair is in the year: the CRA pages do not settle every case. Work through repair or capital cost, then get individual tax help for each item that is unclear.
• You rent a room or suite in your home, or offer short stays: see splitting suite expenses and Airbnb as rental or business income.
• You co-own the rental, or your corporation holds it: see co-owned rentals or books for a rental holding corporation.
• Your rental shows a loss, or a refinance or credit line funded part of it: see rental losses and CRA review and interest on borrowed money for a rental.
• You live outside Canada and rent out a Canadian property: tax is generally withheld from the rent and different filing rules apply. See non-resident landlords and cross-border tax help.
• Past years of rent or books are missing: see catching up on unfiled returns and rebuilding books from bank statements, and get bookkeeping help.