Updated: April 2025  |  bremo.io financial guides

Canada Rental Income Taxes 2025

If you own a rental property in Canada, you must report your rental income on your personal tax return each year. The good news is that the CRA allows you to deduct many expenses against your rental income, often resulting in a much lower net rental income than your gross rents suggest. This guide explains how rental income is taxed, what you can deduct, and strategies to manage your rental tax obligations.

How Rental Income Is Taxed

Rental income in Canada is taxed as regular income — added to your other income (employment, business, etc.) and taxed at your marginal rate. There is no special capital gains treatment for annual rental income; it is fully included in your taxable income.

You report rental income on Form T776 (Statement of Real Estate Rentals), which is submitted with your annual T1 tax return. You report gross rents received and then subtract eligible expenses to arrive at your net rental income (or loss).

Eligible Rental Expense Deductions

The CRA allows deductions for reasonable expenses incurred to earn rental income:

• Mortgage interest — The interest portion of your mortgage payments (not the principal repayment)
• Property taxes — Municipal property taxes paid during the year
• Property insurance — Premiums for rental property insurance
• Maintenance and repairs — Cost of repairing existing items (not improvements)
• Utilities — If you as the landlord pay any utilities
• Property management fees — Fees paid to a property management company
• Advertising — Costs to advertise for tenants
• Accounting and legal fees — Related to the rental property
• Landscaping and snow removal
• Travel expenses — Reasonable travel to manage or maintain the property

Capital Cost Allowance (CCA)

The building portion of your rental property (not the land) can be depreciated using the Capital Cost Allowance (CCA) system — Class 1 at 4% declining balance per year. While CCA can reduce or eliminate your rental income on paper, there are two important limitations:

1. CCA cannot create or increase a rental loss — it can only reduce rental income to zero
2. When you sell the property, previously claimed CCA is recaptured as regular income (recaptured depreciation)

Many tax advisors recommend not claiming CCA on rental properties because of the recapture issue on sale and the impact on your principal residence exemption if the property is converted.

Rental Losses

If your eligible rental expenses exceed your rental income, you have a rental loss. Rental losses can generally be deducted against your other income, reducing your overall tax bill. However, the CRA requires that there be a "reasonable expectation of profit" — losses that persist for many years may trigger a CRA review.

Short-Term Rentals (Airbnb)

Short-term rental income (through platforms like Airbnb, VRBO, etc.) is treated as rental income if you are not providing significant services (meals, cleaning during stay, etc.). If you do provide hotel-like services, it may be classified as business income instead, with different rules. For short-term rentals, you may also need to register for and collect GST/HST if revenues exceed $30,000.

Selling a Rental Property

When you sell a rental property, the gain is subject to capital gains tax. Only 50% of the capital gain (for amounts under $250,000) is included in income and taxed at your marginal rate. You calculate the gain as the selling price minus your adjusted cost base (original purchase price plus capital improvements) minus selling costs. Any recaptured CCA is taxed as fully taxable regular income, not capital gains.

Principal Residence Exemption

If your rental property was formerly your principal residence (or vice versa), the principal residence exemption may shelter some or all of the capital gain. Careful tracking of years it served as your principal residence is essential.