Rental income in Canada is considered taxable income, which means landlords must report it on their tax returns.
Understanding how to calculate taxes on rental income, including gross vs. net income, and what expenses can be deducted, is essential to avoid penalties and minimize your tax bill.
What counts as rental income?
Rental income includes all money you receive from renting out property. This can be cash, cheques, or even barter transactions for services.
It also includes income from renting out part of your home, such as a basement suite or short-term rentals like Airbnb.
You must report all rental income on your tax return, regardless of whether you receive it regularly or occasionally.
Should I report gross or net rental income?
You report gross rental income first, which is the total amount received before expenses.
Then you subtract eligible expenses to calculate net rental income, which is the amount actually subject to tax.
Gross income includes rent, utilities paid by tenants, and any other benefits received.
Net income is what remains after subtracting allowable expenses.
What expenses can reduce rental income?
The CRA allows landlords to deduct reasonable expenses related to earning rental income. Common deductible expenses include:
- Mortgage interest (not principal repayment)
- Property taxes
- Insurance premiums
- Maintenance and repairs
- Utilities you pay for the rental unit
- Management fees or commissions
- Advertising costs
How do you calculate net rental income?
To calculate net rental income, follow these steps:
- Add all rental payments to determine gross income.
- Add all eligible expenses related to the property.
- Subtract total expenses from gross income.
For example, if your tenants pay $24,000 per year and your deductible expenses total $8,000, your net rental income is $16,000.
This $16,000 is what is added to your other taxable income on your T1 Income Tax Return.
How is rental income taxed?
Net rental income is taxed at your marginal income tax rate, which depends on your total income and province or territory.
Rental income is added to your other sources of income, including employment or self-employment income, and taxed according to federal and provincial rates.
What forms do landlords need to file?
Landlords report rental income on Form T776 (Statement of Real Estate Rentals).
This form allows you to list gross income, claim deductible expenses, and calculate net income.
You then include the net income on line 12600 of your T1 Income Tax Return.
Can you claim capital cost allowance (CCA) on rental property?
Yes, you may choose to claim Capital Cost Allowance (CCA) for depreciation on the building or certain equipment.
However, claiming CCA is optional, because using it can reduce your adjusted cost base, which may increase capital gains tax when you sell the property.
What records should landlords keep?
The CRA requires landlords to keep records for six years. This includes rent receipts, invoices, property tax bills, mortgage statements, and proof of other expenses.
Organized records help ensure accurate reporting and support claims in case of a CRA review.