Rental Income Taxes in Canada 2025: What Landlords Need to Know

Every Canadian landlord must report rental income to the CRA. Whether you rent a basement suite, a condo, or a multi-unit building, the rules are the same: report gross rents, deduct eligible expenses, and pay tax on the net rental income at your marginal rate. This guide covers everything you need to know for 2025.

Where to Report Rental Income: Schedule T776

Rental income is reported on Form T776 – Statement of Real Estate Rentals, which attaches to your T1 personal income tax return. You complete one T776 per rental property (or you can group properties together in some cases). The form captures:

Gross rental income received
All allowable expense deductions
Net rental income (or loss)
CCA claimed (if any)

Net rental income flows to line 12600 of your T1 return and is taxed at your marginal tax rate — the same rate that applies to employment income.

What Counts as Rental Income?

Rental income includes all amounts you receive for the use of property:

Monthly rent payments
Advance rent (e.g., first and last month)
Security deposits you keep (if non-refundable)
Amounts paid by tenants for services or utilities you would normally pay
Lease cancellation payments

Last Month's Deposit: A refundable last-month's rent deposit is not income when received — it becomes income in the final month of tenancy when applied to rent. Keep this straight in your records.

Allowable Rental Expense Deductions

You can deduct reasonable expenses incurred to earn rental income. The CRA requires that expenses be current (not capital) and reasonable. Major categories:

Expense Category	Deductible?	Notes
Mortgage interest	Yes	Interest only, not principal repayment
Property taxes	Yes	Full amount for rental year
Insurance premiums	Yes	Landlord/fire/liability insurance
Repairs and maintenance	Yes	Restoring to original condition; not improvements
Property management fees	Yes	Typical 8–12% of gross rents
Advertising costs	Yes	Rental listings, signage, tenant screening
Utilities (if landlord pays)	Yes	Heat, water, electricity
Landscaping and snow removal	Yes	If part of landlord obligation
Accounting and legal fees	Yes	Related to the rental activity
Travel to property	Yes (partial)	Must be documented; local trips to manage property
Capital improvements	No (capitalize)	Add to cost base; depreciate via CCA
Personal expenses	No	Must be prorated if property is partly personal-use

Capital vs. Current Expenses: A Critical Distinction

This is one of the most common errors landlords make. The CRA distinguishes between:

Current expenses — deductible immediately. These restore something to its original condition (e.g., fixing a leaky pipe, repainting, replacing a broken window).
Capital expenses — must be added to the property cost base or depreciated via CCA. These improve or extend the life of the property (e.g., adding a new room, replacing all windows, installing central air).

Grey Area: Replacing a roof is generally capital. Patching a roof is current. Replacing a single appliance is current. Replacing all appliances as part of a renovation is capital. When in doubt, consult a tax professional.

Mixed-Use Properties: Renting Part of Your Home

If you rent part of your principal residence (e.g., a basement suite), you must prorate expenses between personal and rental use. The usual method is by percentage of floor area. For example, if the rental suite is 30% of your home's total area, 30% of shared expenses (mortgage interest, utilities, insurance) are deductible on T776.

Be aware: renting part of your home can affect the principal residence exemption on a future sale. The exempt portion is reduced for any years you used the property to earn income, unless you elect to preserve the exemption under certain CRA rules.

CCA (Capital Cost Allowance) on Rental Property

CCA is the tax term for depreciation. Rental buildings generally fall under Class 1 at 4% declining balance, applied only to the building portion (not land). Claiming CCA reduces your taxable rental income — but comes with a major catch.

CCA Recapture: When you sell the property, the CRA "recaptures" all CCA you claimed. This recapture is 100% taxable as ordinary income — not at the 50% capital gains inclusion rate. Many landlords choose not to claim CCA for this reason.

Rental Losses

If your deductible expenses exceed rental income, you have a rental loss. Rental losses can generally be deducted against other income (employment, business, investment) in the same year. However, the CRA may challenge losses if they occur year after year without a reasonable expectation of profit — a concept called the "reasonable expectation of profit" (REOP) test.

HST/GST on Residential Rentals

Residential long-term rentals are exempt from GST/HST. You don't charge GST/HST on rent. However, this means you generally cannot claim input tax credits (ITCs) for GST paid on expenses related to the exempt rental activity.

Short-term rentals (under 30 days, like Airbnb) are taxable supplies. If you earn over $30,000 in short-term rental revenue in a 12-month period, you must register for GST/HST and charge it on your rental fees.

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Key Deadlines for Landlords

Deadline	What's Due
April 30	T1 personal return (rental income included)
June 15	Extended deadline if self-employed (but taxes still due April 30)
March 1	RRSP contribution deadline for prior tax year

Tips to Stay CRA-Compliant

Keep all receipts — the CRA can audit up to 4 years back (6 if they suspect fraud)
Maintain a dedicated bank account for rental income and expenses
Keep a mileage log if you drive to manage your rental property
Complete one T776 per property for clarity
File on time — late filing penalties plus interest compound quickly

Conclusion

Rental income tax in Canada is straightforward once you understand the basics: report gross rents, deduct eligible expenses, and pay tax on net income. The biggest decisions — whether to claim CCA, how to handle capital vs. current expenses, and whether to incorporate — depend on your personal situation. Keep detailed records year-round and consider working with a CPA who specializes in real estate.