T776 form, active vs passive classification, CCA on rental property, deductible expenses, and a net rental income calculator
Rental income is one of the most common forms of investment income in Canada — and one of the most frequently misreported. Whether you own one rental condo or a portfolio of properties, understanding the T776 form, what expenses you can deduct, how Capital Cost Allowance works on rental buildings, and when rental activity becomes a business is essential for accurate tax filing and minimizing your tax liability.
The CRA distinguishes between passive rental income and active business income from renting:
Most Canadian landlords (monthly residential tenancies, commercial leases, annual rentals) report on T776. Short-term rentals like Airbnb may be either, depending on services provided — see our Airbnb tax guide.
T776 is filed as part of your T1 personal return. You complete a separate T776 for each rental property. The form captures: gross rental income, all deductible expenses, and Capital Cost Allowance to arrive at net rental income (or loss). Net rental income flows to Line 12600 of your T1. Multiple T776 forms are combined — you cannot use a loss from one property to offset income from another if they are in separate corporations, but as an individual, rental losses from all properties combine on your personal return.
| Expense | Deductible? | Notes |
|---|---|---|
| Mortgage interest | Yes — 100% | Interest only, not principal. Keep annual mortgage statement. |
| Property tax | Yes — 100% | Full municipal property tax for the rental property |
| Insurance | Yes — 100% | Landlord insurance / rental property insurance premiums |
| Maintenance and repairs | Yes — 100% | Current maintenance only; capital improvements go through CCA |
| Property management fees | Yes — 100% | Professional property manager charges |
| Utilities paid by landlord | Yes — 100% | Heat, hydro, water if included in rent |
| Advertising (vacancy ads) | Yes — 100% | Kijiji ads, rental platform fees, signage |
| Accounting and legal fees | Yes — 100% | For the rental activity specifically |
| Travel to inspect/maintain property | Yes — 100% | Reasonable travel — keep records |
| Office expenses (for rental activity) | Yes — 100% | Portion of home office used to manage rentals |
| CCA on building (Class 1, 4%) | Yes — optional | See CCA section — risky for principal residence adjacent properties |
| Mortgage principal | No | Capital repayment — not deductible |
| Personal portion (owner-occupied) | No | Only the rental portion of expenses is deductible |
The building portion of a rental property (excluding land value) can be depreciated at 4% per year under CCA Class 1. In year one, the half-year rule applies (2%). This generates a tax deduction that can shelter rental income from tax in strong cash flow years. However, there are two significant risks:
Most financial advisors recommend being conservative with rental CCA — claim it in years with high rental income to shelter tax, but be aware of the recapture risk at sale.
If your allowable rental expenses exceed your rental income, you have a rental loss. Rental losses (excluding CCA losses) can be deducted against other income on your T1 return — employment income, business income, investment income. This is a significant advantage of rental properties in the early years when mortgage interest and property tax may exceed rental revenues. The CRA may challenge losses if there is no reasonable expectation of profit — make sure your rental is genuinely income-producing, not indefinitely loss-generating.
KOHO's business account helps Canadian landlords collect rent, pay property expenses, and keep rental finances completely separate from personal banking.