Calculate tax on rental income after allowable deductions
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Claim $100 Bonus →All rental income you receive — including advance rent, lease cancellation payments, and tenant-paid utilities — is included in rental income for Canadian tax purposes. Unlike capital gains, rental income has no preferential rate and is taxed at your full marginal rate. However, you can deduct a wide range of expenses.
CRA allows landlords to deduct: mortgage interest (not principal), property taxes, property management fees, repairs and maintenance (not improvements), property insurance, advertising costs, utilities paid by you, travel to the property, office expenses, and professional fees (accounting, legal). Capital improvements must be depreciated via CCA, not expensed directly.
CCA is the Canadian tax equivalent of depreciation. Residential rental buildings fall into Class 1 (4% declining balance). If you bought a property for $600,000 with $150,000 attributed to land, your Class 1 UCC is $450,000. Year 1 CCA = $450,000 × 4% × 50% (half-year rule) = $9,000. While CCA reduces taxes now, it creates a recapture obligation when you sell.
If you claim CCA and later sell the property, you'll face CCA recapture — the depreciation you claimed is added back as income in the year of sale. This is taxed at full marginal rates, not capital gains rates. Many landlords choose not to claim CCA to avoid this future liability, especially in appreciating markets.
If you rent a portion of your home (basement suite, room), only the rental portion's expenses are deductible. But your principal residence exemption (PRE) is prorated — you can only shelter the owner-occupied portion when you sell. Converting an entire home to rental terminates the PRE for the rental period.