Quick Answer
Rental income is fully taxable in Canada — but so are most of your expenses. The net income (rent collected minus eligible expenses) is reported on Form T776 and added to your other income on the T1 return. Most landlords can significantly reduce — or even eliminate — their tax on rental income through proper expense tracking.
What Counts as Rental Income?
- Monthly rent from long-term tenants
- Airbnb and short-term rental income
- Basement suite rental income
- Parking and storage fees charged to tenants
- Security deposits that you keep (forfeit) — Taxable in the year you keep them
- Lease cancellation payments from tenants
Rental Expenses You Can Deduct
These expenses are deductible in the year paid (current expenses), as opposed to capital expenses which are added to the cost base or claimed through Capital Cost Allowance:
- Mortgage interest — Only the interest portion, not principal repayments
- Property taxes
- Property insurance
- Maintenance and repairs — Replacing a broken furnace, fixing a roof leak, repainting
- Advertising costs — Online listings, real estate agent fees for finding tenants
- Property management fees
- Accounting fees related to the rental
- Utilities paid by the landlord (if not passed on to tenants)
- Travel expenses to inspect or manage the property
- Legal fees related to the rental
- Office expenses (portion used for rental administration)
Capital Cost Allowance (CCA)
Capital improvements (a new roof, furnace, appliances, or renovations that extend the life or improve the value of the property) are not immediately deductible. Instead, they are added to the property's undepreciated capital cost and claimed as CCA (depreciation) over time. The annual CCA rate for rental buildings is typically 4% (Class 1). CCA cannot be used to create or increase a rental loss.
Splitting Income with a Spouse
If you own the rental property jointly with a spouse, you each report your proportionate share of net rental income. This can effectively halve the tax rate on rental income if both spouses are in significantly different tax brackets. The ownership percentage must be a legal ownership percentage — you cannot arbitrarily split income without corresponding ownership.
Rental Property vs Business Income
Long-term residential rental is passive income reported on T776. If you offer significant services (like a hotel), the CRA may reclassify it as business income, with different tax implications. Short-term Airbnb rentals where you offer services like daily cleaning, meals, or concierge tend to cross into business income territory.
GST/HST on Rental Income
Long-term residential rentals are exempt from GST/HST — you do not charge or collect it, and you cannot claim ITCs. Short-term rentals (less than 30 days per booking) are taxable, and you must register for HST once revenue exceeds $30,000 in a 12-month period.
Selling Your Rental Property
When you sell a rental property, you report a capital gain (or loss) equal to the selling price minus your adjusted cost base (original purchase price plus capital improvements). Capital gains are taxed at 50% inclusion (as of 2025 — but check for 2026 updates). Any CCA you claimed over the years is "recaptured" as ordinary income in the year of sale.
Report Rental Income Correctly
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