Do renovation costs to convert a house into a multi-unit rental property have to be capitalized?

Yes. Converting a single house into a multi-unit rental property is a structural conversion, and the renovation costs involved are treated as capital improvements rather than current repairs, even where some individual pieces of the work might otherwise look like ordinary maintenance in isolation. Adding separate kitchens, additional bathrooms, or new entrances to create multiple independent units fundamentally changes the property beyond its original condition, which is the core of what makes an expense capital rather than current.

This is different from simply repairing or maintaining a property in its existing configuration, and it's worth being clear-eyed about this before starting the project, since it affects both timing and amount of any deduction you can claim. The capitalized renovation costs get added to the property's capital cost and depreciated through CCA over time, rather than being deducted all at once in the year the work is completed, which spreads the tax benefit out over many years instead of concentrating it in one. Keeping thorough records of the conversion project, including permits and a breakdown of what was built, supports both the capital cost calculation and future CCA claims on the newly created units.