Rental Income Tax in Canada: What Property Owners Should Know
The rent arrives in your bank account each month. Some of it goes toward the mortgage, some toward property expenses, and the rest may feel like extra income. But when tax season comes around, how much of that money is actually taxable?
Get help with rental income on your personal tax returnFor a property you rent out in Canada, your personal return generally includes the rent and the eligible expenses of earning it. What stays in your account can differ from your net rental income. The quickest way to see why is to look at what happens to a mortgage payment.
Why the money left in your account can tell a different story
Say you rent out a condo. In one year, the tenant pays $24,000. You spend $5,000 on eligible costs such as insurance, property tax and minor repairs. Your mortgage payments total $17,000. Of that, $9,000 is interest on the money borrowed to buy the rental and $8,000 pays down the loan.
You have $2,000 left in cash from the rent after these payments. For the return, the $8,000 that paid down the loan is still part of the rental result. Paying off what you borrowed reduces your debt. The interest is the cost of borrowing and may count as a rental expense. In this example, net rental income is $10,000 before any other adjustments.
That $10,000 is rental income for the return. It joins the rest of your income when working out your personal taxes, so two owners with the same net rent can have different tax bills.
A simple example
Same condo, two different balances
- $2,000
Cash left from the rent
$24,000 rent − $5,000 property costs − $17,000 mortgage payments.
- $10,000
Net rental income
$24,000 rent − $5,000 eligible costs − $9,000 mortgage interest.
Both amounts describe the same year. The $8,000 difference went toward paying down the mortgage.
A repair and an upgrade can be treated differently
The plumber fixes a leak in the kitchen. A few months later, you replace the kitchen cabinets and change the layout. Both bills relate to the condo. What the work accomplished matters for the return.
A small repair that keeps the rental in its existing condition may be a current expense. An improvement that gives the property a lasting benefit is usually a capital expense, which generally isn't deducted in full in the year you pay for it. An invoice describing the work is more helpful here than a bank entry that only gives the amount.
Two invoices
What was the work for?
- Repair
Fix a leaking tap
Restores something that was already there.
- Improvement
Remodel and upgrade the kitchen
A lasting improvement needs separate treatment.
The details of the work matter. A large bill can still be for ordinary maintenance.
What changes if you live in part of the property?
If you live upstairs and rent the basement, some bills cover both spaces. An eligible repair made only in the rented suite may be a rental expense. When a bill covers the whole home, generally only the part that relates to the rental can count.
Tell us which space your tenant used and whether the arrangement changed during the year. That gives us a better starting point than asking you to put a percentage beside every bill. If the property was sold or stopped being a rental, tell us that too. The sale is a separate question from the rent you earned.
Related article: What to consider after selling a rental property
What you can bring to the first conversation
A record of rent, the lender's annual mortgage statement and any larger invoices are a good start. If you lived in the property or owned it with someone else, tell us how it was used and who owned it.
We can review the income and expenses, ask about anything the records don't explain and prepare your personal return with the rental included. Start with the records you have.
Renting out a property? Let's talk about your return.
Tell us what you rented out and which expenses you’re unsure about. In the free first consultation, we can discuss which mortgage or repair records may help and what we can handle for your return.
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Official Canadian sources (3)
These CRA and Government of Canada pages are the primary sources used to check the tax information in this article.
This article is general information, not personal tax advice. Your situation may differ. For advice specific to you, book a free call.