Rental Income

Rental income from real property is generally property income, reported on Form T776, Statement of Real Estate Rentals, with the net amount on line 12600 (gross on line 12599). Short-term rentals that provide many services, like a hotel, may instead be business income on Form T2125.

DEDUCTIBLE EXPENSES

Mortgage interest (not principal), property taxes, insurance, utilities paid by the landlord, condominium fees, maintenance and repairs, advertising, legal and accounting fees, and property management fees.
For a rented room or basement in the owner's home, only the rented proportion of expenses (by square footage or number of rooms) is deductible.
Expenses must be reasonable and incurred to earn rental income; renting to a relative below market may mean there is no reasonable expectation of profit and losses are denied.

CURRENT VERSUS CAPITAL EXPENSES

Current: recurring repairs that restore the property to its original condition, deductible in the year.
Capital: improvements that extend useful life or improve the property beyond its original condition (new roof of better quality, an addition), depreciated through CCA.

CAPITAL COST ALLOWANCE

Buildings are generally Class 1 (4 percent declining balance); land is not depreciable.
CCA is optional and cannot be used to create or increase a rental loss.
Recapture: if the property is sold for more than its undepreciated capital cost, CCA previously claimed is added back to income in full.
Claiming CCA on part of a principal residence can compromise the principal residence exemption for that part.

NON-COMPLIANT SHORT-TERM RENTALS

Since 2024, operators of short-term rentals (under 90 consecutive days) in provinces or municipalities that prohibit them, or who do not have required licences or permits, cannot deduct their expenses.

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