Rental Income Basics
What to Report
| Income Type | Reportable |
|---|---|
| Monthly rent | Yes |
| Last month’s rent deposit | Yes (in year received) |
| Parking fees | Yes |
| Laundry income | Yes |
| Utility reimbursement | Yes (if tenant pays separately) |
When to Report
| Filing | Details |
|---|---|
| Tax return | Form T776 - Statement of Real Estate Rentals |
| Due date | April 30 (or June 15 if self-employed) |
| Installments | May be required if net rental income is significant |
Deductible Expenses
Shared Expenses (Proportionate)
| Expense | Deduction |
|---|---|
| Mortgage interest | % of suite |
| Property tax | % of suite |
| Home insurance | % of suite |
| Hydro/Gas | % of suite (or actual if metered) |
| Water | % of suite |
| Common repairs | % of suite |
Suite-Specific Expenses (100%)
| Expense | Deduction |
|---|---|
| Suite repairs | 100% |
| Suite appliances | CCA (20%) |
| Advertising | 100% |
| Rental agent fees | 100% |
| Credit checks | 100% |
| Suite insurance rider | 100% |
| Suite-only utilities | 100% |
Non-Deductible
| Expense | Why Not |
|---|---|
| Mortgage principal | Not an expense |
| Personal portion of expenses | Not rental-related |
| Your own labour | Can’t pay yourself |
| Capital improvements | Added to cost base (not current deduction) |
Calculating Your Deduction Percentage
Square Footage Method
| Area | Calculation |
|---|---|
| Basement suite | 700 sq ft |
| Total home | 2,800 sq ft |
| Rental percentage | 25% |
Example Annual Deductions
| Expense | Total | Rental (25%) |
|---|---|---|
| Mortgage interest | $20,000 | $5,000 |
| Property tax | $5,000 | $1,250 |
| Insurance | $1,800 | $450 |
| Utilities | $3,600 | $900 |
| Suite repairs | $800 | $800 (100%) |
| Total deductions | — | $8,400 |
Net Rental Income
| Calculation | Amount |
|---|---|
| Gross rent ($1,500 × 12) | $18,000 |
| Less: Deductions | $8,400 |
| Net rental income | $9,600 |
This $9,600 is added to your other income and taxed at your marginal rate.
Capital Cost Allowance (CCA)
Should You Claim CCA?
| Consider | Details |
|---|---|
| Building CCA | 4% on building (not land) |
| Appliances CCA | 20% on appliances/furniture |
| Recapture on sale | CCA claimed is taxed back when you sell |
| PRE impact | May complicate exemption |
Recommendation: Most homeowners with basement suites should NOT claim CCA on the building to avoid complications with principal residence exemption.
Principal Residence Exemption Impact
CRA’s View
| Scenario | PRE Treatment |
|---|---|
| Small suite, incidental | Full PRE likely preserved |
| Large suite, commercial character | PRE may be apportioned |
| Suite has structural separation | Higher risk of apportionment |
| Consistently rented, significant income | Higher risk |
Minimizing PRE Impact
| Strategy | How |
|---|---|
| Keep records | Document primary use is personal residence |
| Don’t over-claim CCA | Especially on the building |
| Use suite occasionally | Show it’s not purely commercial |
| Professional advice | Consult tax accountant |
Legal Requirements
Provincial Regulations (Sample)
| Requirement | Details |
|---|---|
| Fire separation | Usually 45-60 minute rating |
| Smoke/CO detectors | In suite and common areas |
| Egress window | Minimum size for bedroom |
| Ceiling height | Minimum 6'5" - 7'0" |
| Separate entrance | Often required |
| Building permit | Required for new suite |
Landlord-Tenant Laws
| Area | Governed By |
|---|---|
| Ontario | Residential Tenancies Act |
| BC | Residential Tenancy Act |
| Alberta | Residential Tenancies Act |
Key provisions:
- Standard lease requirements
- Rent increase limits
- Eviction procedures
- Security deposits
Setting the Right Rent
Market Research
| Method | How |
|---|---|
| Comparable listings | Check Kijiji, Craigslist, Facebook |
| Rental sites | Rentals.ca, Zumper |
| Property management | Ask local companies |
Pricing Factors
| Factor | Impact |
|---|---|
| Private entrance | +$100-200/month |
| Utilities included | +$100-150/month |
| Parking | +$50-150/month |
| Laundry | +$25-50/month |
| Modern finishes | +$100-200/month |
Record Keeping
What to Keep
| Document | Retention |
|---|---|
| Lease agreements | Duration + 6 years |
| Rent receipts/records | 6 years |
| Expense receipts | 6 years |
| Mortgage statements | 6 years |
| Utility bills | 6 years |
| Repair invoices | 6 years |
| CCA schedules | Until property sold + 6 years |
Common Mistakes
| Mistake | Correction |
|---|---|
| Not reporting income | Always report |
| Overclaiming expenses | Use accurate % |
| Claiming CCA without understanding implications | Consult professional |
| No documentation | Keep all receipts |
| Illegal suite | Legalize or understand risks |