Understanding Taxes on Rental Income in Canada

Owning rental property can be a great way to build wealth—but it also comes with tax responsibilities. If you earn rental income in Canada, it’s important to understand how it’s taxed, what expenses you can deduct, and how to stay compliant with CRA regulations.

Here’s what every rental property owner should know.

What Is Rental Income?

Rental income is any payment you receive for the use or occupation of your property. This includes:

Monthly rent payments
Advance rent payments
Security deposits are used as rent
Payments for services (parking, utilities, laundry, etc.)

All rental income must be reported on your personal or corporate tax return.

How Is Rental Income Taxed?

Rental income is taxed at your marginal tax rate if you own the property personally.

To calculate taxable rental income:

Rental Income – Allowable Expenses = Net Rental Income

This net amount is added to your total income for the year.

If the property is owned through a corporation, different corporate tax rates may apply.

Common Rental Expense Deductions

One of the biggest advantages of rental property ownership is the ability to deduct eligible expenses.

Common deductible expenses include:

Mortgage interest (not principal payments)
Property taxes
Insurance
Utilities (if paid by landlord)
Repairs and maintenance
Property management fees
Advertising costs
Accounting and legal fees
Condo fees

Proper record-keeping is essential to support these deductions in case of CRA review.

Repairs vs. Capital Improvements

It’s important to understand the difference:

Repairs & Maintenance: Immediately deductible (e.g., fixing a leak, repainting walls)
Capital Improvements: Added to the property’s cost base and deducted over time through Capital Cost Allowance (CCA)

Incorrect classification can trigger CRA reassessments.

What Is Capital Cost Allowance (CCA)?

CCA allows you to deduct a portion of the property’s value over time.

However, claiming CCA:

May reduce taxes now
Could increase capital gains tax when you sell

Strategic planning is important before claiming CCA.

Capital Gains When You Sell

When you sell a rental property, you may owe capital gains tax on the profit.

Capital Gain = Selling Price – Adjusted Cost Base – Selling Expenses

In Canada, 50% of the capital gain is taxable.

Planning ahead can help minimize surprises.

GST/HST on Rental Income

In most cases:

Long-term residential rentals are exempt from GST/HST.
Short-term rentals (e.g., Airbnb) may require GST/HST registration if revenue exceeds $30,000 annually.

Understanding your rental type is critical for compliance.

Common Mistakes Rental Owners Make

Not reporting rental income
Mixing personal and rental expenses
Incorrectly claiming capital improvements
Ignoring short-term rental GST/HST obligations
Poor record-keeping

These mistakes can result in penalties and interest from CRA.

How TaxWithEase Can Help

At TaxWithEase, we help rental property owners across Canada:

Accurately report rental income
Maximize eligible deductions
Plan for capital gains
Structure ownership efficiently
Stay compliant with CRA rules

Whether you own one property or multiple investments, professional tax guidance can protect your profits.

Final Thoughts

Rental properties can be a powerful investment—but proper tax planning is essential. Understanding your reporting requirements and deduction opportunities can significantly impact your overall return.

If you own rental property and want to ensure you’re filing correctly and efficiently, TaxWithEase is here to help.