Can I rent to a family member for below market rent?

Yes, but CRA limits your deductions. When you charge below-market rent, you can only deduct rental expenses up to the amount of rental income received — you cannot generate a rental loss. If you rent to a family member for free or at a token amount, the arrangement may not qualify as a rental activity for tax purposes at all.

Are there attribution rules for rental income from family?

Yes. If you transfer or lend money or property to a spouse, common-law partner, or minor child and they earn income from it (such as rental income from a property you now jointly own), CRA may attribute that income back to you. Attribution rules are complex and depend on whether the property was transferred at fair market value, at a prescribed interest rate, and whether an election was made.

Is the principal residence exemption available if I rent to family?

Renting to a family member does not automatically affect PRE eligibility, but it changes the PRE calculation. Once you start renting any part of your principal residence — even to a son or daughter — the PRE may only apply to the portion you personally occupy. You may also be deemed to have made a change-in-use, triggering a deemed disposition.

What is fair market rent and how does CRA determine it?

Fair market rent is the amount a tenant would pay in the open market for a comparable unit in the same area. CRA compares your rental income to local rental rates. If you charge materially less than fair market value, CRA treats the arrangement as below-market and applies deduction limits. You can determine FMR by checking comparable listings on Rentals.ca, Craigslist, or Kijiji.

What if I let a family member live there for free?

A free occupancy arrangement is not a rental activity for tax purposes. You cannot claim any rental deductions. If the property is owned jointly, the free occupancy may still affect the capital gains calculation on sale. The property may be treated as a personal-use property, not a rental property.

Can I claim CCA when renting to family below market rent?

No. CCA can never create or increase a rental loss under normal conditions. Since below-market-rent rules already prevent losses, CCA is further restricted. CCA can only reduce net rental income — not take it below zero — and with below-market rent, the maximum you can claim in expenses is capped at income anyway.

Renting to Family: Tax Implications in Canada

Short Answer

Renting to a family member is allowed, but CRA applies a key restriction: if you charge below fair market rent, your rental expenses can only offset the rent collected — you cannot generate a rental loss. Renting for free eliminates the rental deduction entirely.

The Below-Market Rent Rule

CRA’s position is clear: rental losses from non-arm’s-length (related party) arrangements are not deductible.

Rent charged	Deductions allowed
Fair market rent	Full expenses deductible — rental losses allowed
Below fair market rent	Expenses deductible only up to rent received — no loss
Rent of $1/month or free	No rental deductions at all

Example:

Item	Fair market rent	Below market rent
Rent charged	$2,000/month = $24,000/year	$800/month = $9,600/year
Operating expenses	$20,000	$20,000
CCA	$5,000	$5,000
Net income (loss)	$4,000 loss (deductible)	$0 net — can’t go below $0
Tax deduction from rental	Loss reduces other income	Nothing

Who Is Considered Family for CRA Purposes?

CRA’s non-arm’s-length rules apply to:

Relationship	Non-arm’s-length?
Spouse or common-law partner	Yes
Child or parent	Yes
Sibling	Yes
Grandparent / grandchild	Yes
In-law relatives	Depends on facts — often yes
Close friend	No (unless financial dependence established)

The key question is whether the parties would have agreed to the same terms if they were dealing at arm’s length (like strangers in the marketplace).

Attribution Rules on Jointly Owned Property

If you transferred property (or funds to buy property) to a spouse or common-law partner:

Scenario	Attribution applies?
Gifted interest in property to spouse	Income attributed back to you
Sold to spouse at FMV with no loan	No attribution on income earned
Loaned money to spouse for rental property at CRA prescribed rate	No attribution (if rate is paid)
Transferred property to adult child at FMV	No income attribution (capital gains attribution may apply)
Moved property to minor child	Income attributed back to you

To avoid attribution on a spousal transfer: Charge the CRA prescribed interest rate on any loan, paid and reported annually.

GST/HST: Residential Rentals Are Exempt

Rental type	GST/HST required?
Long-term residential rental (30+ days)	Exempt — no GST/HST charged
Renting to a family member long-term	Exempt — same as any long-term residential rental
Short-term rental under 30 days (Airbnb)	Taxable — register once $30,000 threshold is exceeded

Impact on the Principal Residence Exemption

If you own a home and rent out part of it to a family member:

Scenario	PRE impact
Family member lives in your basement, you live in the rest	PRE applies fully if no structural changes and you claim the space back
You move out and let a child live in the whole house	PRE may continue under certain administrative positions if no rental income
Charging rent — even below market	Partial rental use begins — PRE may be prorated
Making improvements specifically for the rental use	May trigger a change-in-use on that portion

Document Everything

Even when the landlord-tenant relationship is with a family member, maintain records as if it were an arm’s-length arrangement:

Documentation	Why
Written lease agreement at or near market rent	Protects PRE position and demonstrates rental activity
Rent receipts or e-transfer records	Evidence of rent received
Local comparable rent listings	Establishes what fair market rent was at the time
Receipts for all expenses claimed	Required for any deduction if CRA audits

Bottom Line

Renting to a family member is not inherently problematic, but applying below-market rent eliminates the ability to generate deductible rental losses. If the goal is to help a family member while maintaining tax deductions, charge fair market rent (documented with comparables) and treat the arrangement formally with a written lease and regular rent payments.

Capital Cost Allowance risk when renting below market

When you rent at fair market value, you can claim CCA (depreciation) on the property as a rental building. However, CCA creates a risk known as recapture: when you sell the property, any CCA you claimed that exceeds actual depreciation is added back to income as recaptured CCA.

If you switch from renting at fair market value to renting to a family member below market (or vice versa), it may trigger a change in use for CRA purposes:

Situation	CRA treatment
Changed use from income-producing rental to below-market family rental	Deemed disposition at FMV — may trigger capital gain
Returned to arm’s-length rental after family use	Deemed re-acquisition at FMV
Lived in property yourself, then rented — then returned to personal use	Principal Residence Exemption may apply to cover gain during personal use period

Because change-in-use dispositions can trigger capital gains unexpectedly, consult a tax advisor before changing the rental arrangement for a property with significant appreciation.

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