Rental Income Tax in Canada, What You Owe and What You Can Deduct
Renting out a property adds complexity to your tax return. Here is what every Canadian landlord needs to know.
Rental income is fully taxable in Canada and must be reported on your T1 personal tax return each year. Most landlords can significantly reduce their taxable rental income by claiming all eligible deductions if those expenses are tracked and reported correctly. Our accountants and our tax software handle your complete T776 rental return.
File My Rental Income Return With T.U.AEvery Deduction Applied
Mortgage interest, repairs, insurance, property management, our accountants and our tax software claim them all.
T776 Prepared for You
The rental income form is complex. T.U.A handles it as part of your full T1 return.
A real taxation software designed to assist with maximizing your return
Airbnb and VRBO income has specific CRA rules. T.U.A knows them and applies them through our app.
Do You Have to Report Rental Income to the CRA?
All rental income from any property, house, apartment, basement suite, condo, short-term rental, must be reported on your T1 return. There is no minimum threshold. Even a few months of rental income must be declared.
The CRA specifically audits rental income. Penalties for non-reporting include interest plus a 10% gross negligence penalty if the CRA determines the omission was intentional.
How Is Rental Property Income Taxed in Canada?
Rental income is added to all other income and taxed at your combined federal and provincial marginal rate. There is no separate or preferential rate for rental income. However, you are only taxed on net rental income, gross receipts minus all allowable expenses.
The difference between gross and net can be substantial with proper deductions. Most Canadian landlords overpay rental tax by not claiming all eligible expenses, particularly mortgage interest and capital cost allowance.
What Expenses Can You Deduct From Rental Income in Canada?
You can deduct mortgage interest (not principal, only interest), property taxes, building insurance, property management fees, advertising to find tenants, repairs and maintenance (not capital improvements), landscaping and snow removal, utilities paid on behalf of tenants, accounting and legal fees related to the property, and travel to inspect or manage the property.
For renting part of a primary residence, such as a basement suite or room, you can claim a proportional share of home expenses based on the floor space percentage used for renting.
Canadian landlords who do not track rental expenses correctly overpay their tax by 20 to 35 percent. A properly filed T776 with all eligible deductions is the most effective way to reduce your rental tax bill.
What Is the T776 and How Does Rental Income Filing Work?
Form T776, Statement of Real Estate Rentals, is filed as a schedule attached to your T1 personal return, not a separate return. You must file one T776 per rental property. It reports gross rents received, each expense category, and the resulting net rental income or loss.
If expenses exceed income, the rental loss can generally be used to reduce other income subject to Capital Cost Allowance restrictions. The T776 must be filed even if rental income was zero due to a vacancy during the year.
How Much Tax Do You Pay on Rental Income in Canada?
There is no fixed rental income tax rate, it is taxed at your marginal rate. Federal rates range from 15% to 33%. Provincial rates are added on top, bringing combined marginal rates to 20-54% depending on your province and total income level.
Because rental income is added to your employment income, high-bracket earners may see their rental income taxed at 40% or more. This makes deduction planning critical, every dollar of deductible expense saves tax at your highest marginal rate.
How T.U.A Files Your Rental Income Return
T.U.A's intake for rental clients captures your gross rental receipts, a complete expense breakdown by category, your mortgage statement for correct interest calculation, and any capital improvements made during the year.
Our accountants and our tax software prepare the complete T776 attached to your T1, applying all eligible deductions correctly, handling the capital versus current expense distinction, and calculating capital cost allowance if applicable.
Let a Real Accountant Handle Your Rental Income Return
Rental returns are complex. Getting them right means claiming every deduction and avoiding penalties.
Frequently Asked Questions
Common questions about rental income tax in Canada.
Learn more about how T.U.A works or check our full FAQ.