- You report rental income and expenses on Form T776, and the net amount goes on line 12600 of your return.
- Current expenses are generally deductible in the year they are incurred, while capital expenses are deducted over time through capital cost allowance.
- You cannot use capital cost allowance to create or increase a rental loss.
Owning a rental property in Ontario means your tax return gets more involved. You have to report what you collect, and you can usually reduce your taxable rental income by what it costs to earn it.
This article explains how rental income is reported, how expenses are sorted into two types, how depreciation-style deductions work, and what happens when you sell. Whether a specific cost, such as mortgage interest, property tax or a repair, is deductible depends on the facts, so confirm the details with an accountant or lawyer.
Reporting rental income
If you received rental income from real estate, you must file a statement of income and expenses on Form T776. Gross rents go on line 8299, and the net amount from line 9946 goes on line 12600 of your return.
If you own the property with someone else, each co-owner reports their share of the rental income or loss according to their ownership share.
If you rent out only part of your own home, you split the selling price and cost between the two uses on a reasonable basis, such as square metres or number of rooms, when you later sell. How your rental use affects the rest of the home depends on the facts.
Current expenses and capital expenses
The key question for any cost is whether it is a current expense or a capital expense. Current expenses give a short-term benefit and are generally deductible in the year you incur them. Capital expenses give a benefit that usually lasts several years, so their cost is deducted over time through capital cost allowance (CCA).
| Type of expense | Benefit | How it is generally deducted |
|---|---|---|
| Current expense | Short-term | In the year it is incurred |
| Capital expense | Usually lasts several years | Over time through CCA |
A small repair and a major improvement can fall on different sides of this line. If you are unsure where a particular cost belongs, an accountant can help you classify it before you file.
How capital cost allowance works
- Rental buildings are generally Class 1, with a 4% rate.
- Land is not depreciable property, so you cannot claim CCA on it.
- In the year you acquire a rental property, you can usually claim CCA on only one-half of your net additions to a class.
- Each rental property acquired after 1971 with a capital cost of $50,000 or more must be put in a separate CCA class.
CCA matters when you sell, because recapture of CCA arises if the sale proceeds take the class's undepreciated capital cost below zero, so it is worth thinking about before you claim it each year.
When you can claim a rental loss
If your current expenses are higher than your rents, you may have a rental loss. You cannot use CCA to create or increase a rental loss. In practice, this means CCA can reduce your rental income down to zero, but it cannot push you into a loss or make an existing loss bigger.
If you turn your home into a rental, the change of use can have tax effects of its own. You are generally treated as having sold the home at fair market value and bought it back at the same amount. You can elect not to be treated as having changed its use, but you cannot claim CCA on the property while that election applies. The election is made by attaching a signed letter to your return for the year the change happens.
Selling a rental property and what to do next
A capital gain is the proceeds of disposition minus the adjusted cost base and any outlays and expenses of selling. For 2025, the capital gains inclusion rate is 50%, so half of a capital gain is taxable. The sale is reported on Schedule 3.
Recapture of CCA arises if the proceeds take the class's undepreciated capital cost below zero, and it is reported on Form T776 (line 9947). If the property sells for more than its cost, you may have both a capital gain and recapture. If a balance remains in the class after the last property in it is sold, you can usually deduct that terminal loss from rental income in the year of sale, but you cannot have a capital loss on depreciable property.
- Keep records of all rents received and every cost you pay for the property.
- Sort each cost into current or capital before you file.
- Confirm each co-owner's share if you do not own the property alone.
- Decide with an accountant whether and how much CCA to claim.
- Speak to a lawyer or accountant before changing the use of a home or selling a rental.
Frequently asked questions
Where do I report rental income on my return?
You file Form T776, with gross rents on line 8299. The net amount from line 9946 goes on line 12600 of your return.
Are repairs deductible?
Current expenses, which give a short-term benefit, are generally deductible in the year incurred. Costs that give a benefit lasting several years are capital expenses and are deducted over time through CCA. Whether a particular repair is current or capital depends on the facts.
Can I claim CCA to create a rental loss?
No. You cannot use CCA to create or increase a rental loss.
What if I own the rental with someone else?
Each co-owner reports their share of the rental income or loss according to their ownership share.
Sources
- CRA – Principal residence — canada.ca
- CRA Guide T4037, Capital Gains — canada.ca
- CRA Guide T4036, Rental Income — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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