Do I have to report rental income in Canada?

Yes. All rental income — whether from a basement suite, a second property, an Airbnb, or renting to family — must be reported on your Canadian tax return. Rental income is reported on Form T776 (Statement of Real Estate Rentals) and the net amount is included on line 12600 of your T1 return.

How is rental income taxed in Canada?

Net rental income (gross rents minus eligible expenses) is taxed as ordinary income at your marginal rate. There is no special rental income tax rate. If your marginal rate is 43%, you pay 43% on your net rental profit. Losses can generally be deducted against other income (subject to reasonable expectation of profit rules).

What expenses can I deduct against rental income?

Common deductible expenses include: mortgage interest (not principal), property taxes, insurance, maintenance and repairs, property management fees, advertising, utilities paid by the landlord, accounting fees, and capital cost allowance (CCA). The expense must be incurred to earn rental income and supported by receipts.

Can I claim CCA (depreciation) on a rental property?

Yes, but claiming CCA can trigger recapture when you sell — the CCA previously claimed is added back to income in the year of sale. CCA also cannot create or increase a rental loss. Most tax advisors recommend only claiming CCA strategically, not automatically, as the recapture on sale can be painful.

What triggers a CRA audit on rental income?

Common CRA audit triggers for rental income include: claiming rental losses year after year without improvement, claiming 100% of an expense that is clearly partially personal, inconsistent rental income amounts, not reporting short-term rental income, and significant capital cost allowance claims. CRA cross-references T776 filings with property sales data.

What happens when I sell a rental property in Canada?

When you sell a rental property, you may face: (1) capital gains tax on appreciation from the adjusted cost base, (2) recapture of any CCA previously claimed (taxed as income, not capital gains), and (3) potential principal residence exemption if the property qualifies for some years. The capital gains inclusion rate is 50% for the first $250,000 and 66.67% above that.

Do I need a GST/HST account as a landlord?

Long-term residential rentals are generally exempt from GST/HST, so most landlords renting residential property do not need to charge or remit GST/HST. However, short-term rentals (under 30 days, such as Airbnb) are taxable supplies and may require GST/HST registration once revenue exceeds $30,000. Commercial property rentals are also taxable.

Landlord Tax Guide Canada: Complete 2026 Reference

Short Answer

Canadian landlords are subject to income tax on net rental income, capital gains on property appreciation, and potential CCA recapture on sale. Proper record-keeping and understanding which expenses are deductible — and which are not — is the foundation of rental tax compliance.

The T776: Your Core Filing Document

All rental income and expenses are reported on CRA Form T776, Statement of Real Estate Rentals. Key sections:

T776 section	What you report
Part 1 — Rental income	Gross rents received from all units
Part 2 — Expenses	All deductible operating expenses
Part 3 — Net income/loss	Gross income minus expenses
Part 4 — CCA	Optional depreciation claim
Line 12600 on T1	Net rental income (or loss) carried forward

If you co-own the property, each co-owner files their own T776 reporting their proportionate share.

What Counts as Rental Income

Income type	Taxable?
Monthly rent payments	Yes
Security deposits kept (damage, unpaid rent)	Yes — in year applied or forfeited
Security deposits (refundable, held)	No — until forfeited or applied
First and last month’s rent upfront	Yes — in year received
Payment for laundry, parking, storage	Yes
Insurance proceeds for lost rent	Yes
Tenant-paid utilities (if included in rent or reimbursed)	Yes

Deductible Expenses: What You Can Claim

Expense	Notes
Mortgage interest	Only the interest portion, not principal repayment
Property taxes	City/municipal taxes paid during the year
Insurance premiums	Landlord/rental property insurance
Maintenance and repairs	Routine upkeep — not improvements (see below)
Property management fees	Third-party management company fees
Advertising	Rental listing costs, signage
Legal and accounting	Lawyer fees for lease disputes, accountant fees for T776 prep
Utilities	Heat, electricity, water — only if you pay them
Travel costs	Reasonable costs to manage/inspect property
Office expenses	A portion of general administrative costs
Capital cost allowance (CCA)	Optional depreciation — see CCA section

Repairs vs. Capital Improvements: A Critical Distinction

CRA draws a hard line between repairs (currently deductible) and capital improvements (added to adjusted cost base):

Item	Repair or capital?	Treatment
Patching a roof leak	Repair	Deduct in year incurred
Replacing the entire roof	Capital improvement	Add to ACB; depreciate via CCA
Repainting walls	Repair	Deduct in year incurred
Adding a new bathroom	Capital improvement	Add to ACB
Replacing a broken window	Repair	Deduct in year incurred
Adding new windows throughout	Capital improvement	Add to ACB
Fixing a furnace	Repair	Deduct in year incurred
Installing a new HVAC system	Capital improvement	Add to ACB

Rule of thumb: If the work restores something to its original condition, it is a repair. If it upgrades, improves, or adds to the property, it is a capital improvement.

Mortgage Interest: What You Can (and Cannot) Claim

Claimable	Not claimable
Interest on mortgage for the rental property	Principal repayment
Interest on a loan used to purchase or improve the rental property	Interest on personal borrowing
HELOC interest — only the portion used for rental investment	Mixed-use HELOC interest (personal portion)

If you refinanced and pulled cash out for personal use, only the portion of interest attributable to the rental investment is deductible. Keep detailed records of loan purpose.

Capital Cost Allowance (CCA)

CCA is depreciation on the building portion of your rental property (land is not depreciable):

CCA class	Asset type	CCA rate
Class 1	Most residential buildings	4% (declining balance)
Class 8	Appliances, fixtures, equipment	20%
Class 10	Vehicles used for rental property	30%
Class 12	Small tools, video equipment	100%

Half-year rule: In the year of acquisition, you can only claim half the normal CCA rate.

CCA cannot create a rental loss — you can only claim CCA up to the point where net rental income reaches $0.

Recapture risk on sale: If you sell the building for more than its undepreciated capital cost (UCC), the difference is recaptured as income (not capital gains) in the year of sale. Under the 2024 capital gains changes on rental property, recapture is particularly expensive at higher marginal rates.

Rental Losses

A rental loss occurs when your expenses exceed your income. Losses are generally deductible against your other income (employment, business, etc.) — but CRA scrutinizes losses closely.

CRA concern	What they look for
Reasonable expectation of profit (REOP)	If CRA concludes there is no profit motive, losses may be denied
Consistent year-after-year losses	Raises questions about genuine rental activity
Below-market rent to family/friends	CRA may only allow expenses up to the revenue earned
Personal-use mixed property	Loss claimed on a property you also use personally

Common CRA Audit Triggers for Landlords

Trigger	Why CRA notices
Rental losses claimed multiple years in a row	Questions profit motive
100% of mortgage interest claimed on mixed-use property	Suggests personal use portion not excluded
No rental income reported despite advertising a unit	CRA matches property listings with T1 data
Airbnb income not reported	CRA has data-sharing with platforms
Large CCA claims that eliminate all rental income	Suggests filing strategy rather than genuine depreciation
Expenses that appear unusually high relative to revenue	Triggers review

Record-Keeping Requirements

CRA requires records to be kept for at least six years after the later of the tax return filing deadline or the date the return was filed.

Keep these records	Duration
All rental income receipts and lease agreements	6+ years
All expense receipts (repairs, insurance, mortgage statements)	6+ years
Capital improvement invoices	Life of property + 6 years (for ACB)
Mortgage statements showing interest vs principal split	6+ years
Property purchase and sale documents	Life of property + 6 years
CCA schedule	As long as property is owned + 6 years

Bottom Line

Rental income in Canada is taxed as regular income, but the full range of deductible expenses — especially mortgage interest, property tax, insurance, and maintenance — can substantially reduce the tax hit. The two most important planning decisions are whether to claim CCA (given recapture risk) and how to document the repair vs capital improvement distinction. Keep all receipts from day one of ownership.

→ Back to: Complete Canadian Tax Guide