Does CRA Audit Rental Income and Rental Expense Claims in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Yes, the CRA can ask about rental income and expenses, and landlords should be ready for that. Rental income and expenses are reported on Form T776, but the supporting invoices, receipts and contracts are not filed with the return; you keep them in case the CRA asks, and unsupported expenses may be disallowed. Books and records must generally be kept for a minimum of six years.
The CRA says it audits files it identifies as high risk using risk-assessment tools, analytics, leads and third-party data. A business audit typically asks for items such as ledgers, journals, invoices, receipts, contracts and bank statements. Indirect methods can be used where records may be unreliable, accounts are mixed or lifestyle does not match reported income.
Personal use matters: the personal portion of each expense is not deductible. Co-owners report their share of net rental income by ownership percentage, and rental losses are not allowed on a cost-sharing arrangement rather than a rental operation. Keep personal and rental banking separate, and organize receipts by property and year so you can answer quickly. A lawyer or accountant can help you assemble support.
Key takeaways
- Rental income and expenses are reported on Form T776, and the supporting invoices, receipts and contracts must be kept in case the CRA asks.
- Unsupported rental expenses may be disallowed.
- The personal portion of an expense on a property you also use personally is not deductible.
- Books and records must generally be kept for a minimum of six years.