What are restricted rental losses and when does CRA say my rental losses aren't fully deductible?

A restricted rental loss is a situation where CRA denies or limits a rental loss because the arrangement doesn't look like a genuine, profit-driven rental activity. Historically this was framed as the "reasonable expectation of profit" test, and while modern practice looks at it somewhat more broadly, asking whether the arrangement is really a commercial activity or something closer to a personal or hobby-like arrangement, the underlying concern is the same: CRA doesn't want losses deducted from arrangements that aren't genuinely run to make money.

CRA looks at factors like whether rent charged is at or near fair market value, whether the owner is managing the property in a business-like way, and whether the losses look structural and permanent rather than a normal, temporary startup phase most rental properties go through. Below-market rent to family members is one of the clearest triggers, addressed further in a related question. This is a genuinely fact-dependent area rather than a bright-line rule, so the specific details of how the property is run - the rent charged, how expenses compare to income over time, and how the arrangement is documented - matter a great deal to whether a loss will hold up.