Rental Income Tax in Canada: Reporting, Expenses and Losses

Do I report rent from a basement suite, room or roommate?

Rent from a suite or room is generally reportable, even when the room is in your own home. A roommate who pays a small amount toward household upkeep or groceries may instead be part of a cost-sharing arrangement: you do not report that contribution or deduct rental expenses. The arrangement and its purpose matter, not the label you give the payment (CRA: Rental Income).

If you charge rent to earn income, keep a record of the rent and the expenses tied to the rented space. A cost-sharing arrangement cannot create a rental loss (CRA: Rental Income).

How do I report rental income on Form T776?

Net rental income is taxed with your other personal income at regular federal and provincial or territorial rates; there is no separate flat rental tax rate (CRA: Rental Income; CRA: Personal income tax rates). Use Form T776 to calculate rental income or loss, and carry the amounts to your personal return. The CRA requires a statement of rental income and expenses and accepts other financial statements, although it encourages Form T776 (CRA: Completing Form T776).

Usually, report rent when earned and expenses when incurred, even if cash changes hands later. The CRA permits the cash method only when it would produce almost the same net result. Keep leases, rent records, invoices and receipts; do not send them with the return unless asked (CRA: Rental Income).

If you file a Quebec return, an individual who earns rent as sole owner or co-owner also files Form TP-128-V. For an eligible dwelling in Quebec with rent paid or payable on December 31, the landlord must file an RL-31 slip and send tenant copies by the last day of the following February.

Which rental expenses can I deduct?

You can generally deduct reasonable costs incurred to earn rent, limited to the rental-use portion. Mortgage payments need separating: interest on money borrowed to buy or improve the rental may be deductible, while repayment of principal is not (CRA: Rental Income).

Construction or major renovation can change how interest and property taxes are treated. Keep those costs separate for review (CRA: Rental Income).

Is a repair deductible now, or is it a capital expense?

A repair that restores the property's existing condition is usually a current expense. Work that adds a lasting improvement or makes the property better than it was is usually capital; its cost is generally added to capital cost rather than deducted at once (CRA: Current or capital expenses).

The purpose and condition of the property matter more than the size of the bill. For how capital costs may be deducted over time, see capital cost allowance.

How do I split expenses when I rent part of my home?

Deduct only the part of a shared-home cost that reasonably relates to earning rent. The CRA allows a split based on floor area or rooms; for a shared kitchen or living room, consider who can use it or when the tenant uses it (CRA: Rental Income).

If the room is offered for rent for only part of the year, also limit shared annual costs to the rental-use period. Keep the dates and the floor-area or room calculation (CRA: Sharing economy).

Charge a cost solely for the rented space, such as advertising for that room, to the rental. Divide whole-home costs such as insurance, property tax and utilities. On Form T776, enter total expenses and show the personal part separately; retain your measurements and method (CRA: Rental Income). If renting part of your home changes its use for tax purposes, you may defer a deemed sale by signing a section 45(2) election and filing it with your return for that year, without claiming CCA while it applies; see turning a home into a rental and the principal residence exemption (CRA: Capital Gains).

How do co-owners or spouses report a rental together?

Co-owners generally report rental income or loss according to their ownership shares, and the split should stay consistent unless ownership changes. Owning an investment property together does not, by itself, make the owners a partnership (CRA: Ownership; CRA: Rental Income).

Each co-owner completes the applicable parts of Form T776. For an ordinary co-ownership, each reports the whole property's gross rent on line 12599, then only their share of net income or loss on line 12600. A partnership that issues a T5013 slip follows different Form T776 instructions (CRA: Rental Income; CRA: Ownership).

If a spouse or child was added to title, title alone may not settle who is taxed on the rent. See transferring property to family.

How is short-term rental income taxed, and when is it business income?

Short-term accommodation income is reportable. Providing space with basic services usually produces rental income from property; additional services such as meals, cleaning or security can make it business income, reported on Form T2125 instead of T776 (CRA: Rental income or business income). Business income may also bring CPP or QPP contributions and, in Quebec, QPIP premiums (CRA: Starting to work; Revenu Québec: Self-employed contributions and premiums).

For a residential property offered for stays of less than 90 consecutive days, check provincial and municipal permission, registration, licence and permit requirements. If the operation breaks those rules, the federal deduction for otherwise eligible expenses is denied in proportion to the days it was non-compliant while offered as a short-term rental. Income still must be reported. Keep licence records and dates (Income Tax Act, section 67.7; CRA: Short-term rental deductions). For accommodation sales tax, see GST/HST on residential property.

Can a rental loss reduce tax on salary?

An eligible rental loss can generally be deducted against other income, including salary, when the expenses were incurred to earn rental income. A cost-sharing arrangement is not an income-earning rental operation, and capital cost allowance cannot create or increase a rental loss (CRA: Rental Income).

For vacant land, interest and property taxes cannot create or increase a rental loss or reduce other income (CRA: Rental Income).

Keep evidence of the rent charged, advertising, leases and expenses. A recurring shortfall, personal use or a family discount can change whether the loss is allowed (CRA: Rental Income).

Can I claim a loss when I rent below market rent to family?

No rental loss is allowed when you lose money because you charge a relative or another person you know less than you would charge an unrelated tenant. A small household contribution for groceries or upkeep is cost sharing: do not report it as rent or claim rental expenses (CRA: Rental Income).

A relative paying the same rent as other tenants can be different if you expect to make a profit. Document comparable rents, the agreement and actual payments; the CRA says a loss may be claimed in that case (CRA: Rental Income).

Will rental income mean I have to pay tax in instalments?

Rental income can lead to instalments if too little tax is withheld elsewhere. For CRA instalments, compare net tax owing on your CRA return, not gross rent, with the applicable threshold. The current-year test and the same test in either of the two preceding years must both be met (CRA: Who has to pay tax instalments).

These are the CRA's published thresholds for the page's tax year (CRA: Who has to pay tax instalments). Quebec residents may also need separate provincial instalments based on net Quebec income tax payable; see Revenu Québec: Instalment payments. A CRA reminder is a prompt to calculate, not proof that the current-year threshold will be exceeded.

Example

Illustrative Canadian-dollar amounts: an owner rents a separate basement suite for C$18,000 during a year. The suite takes one-quarter of the home's floor area. Whole-home property tax, insurance, utilities and eligible mortgage interest total C$12,000, so the rental share is C$3,000. A C$1,000 repair relates only to the suite. On T776, total expenses are C$13,000, the personal portion is C$9,000, and deductible expenses are C$4,000. Net rent is C$18,000 minus C$4,000, or C$14,000. The owner keeps the floor-area calculation and receipts. A later improvement or personal refinance would need separate treatment.

Different for you?

• First rental year, mixed home use, several units or short stays: gather leases, rent and platform records, property tax and insurance bills, mortgage interest statements, receipts, floor-area calculations and local licences for tax preparation.
• You bought equipment or improved the building: see capital cost allowance. You sold a rental: see selling a rental property.
• You moved out and rented your former home: see turning a home into a rental. You rented only part of your home: check the principal residence exemption before a sale.
• The property is outside Canada: see property outside Canada, or Canadian owners of US rental property for a US property. You now live outside Canada: see non-resident landlords.
• You added family to title or rent to them: see transferring property to family. You hold rentals through a corporation: see holding and investment corporations.
• CRA asked about a loss: see reviews and audits. You missed rent in past returns: see unreported income and voluntary disclosure. You are deciding whether to get help: see when you need a tax accountant.