How Rental Income Is Taxed in Ontario for Small Landlords

If you have just become a landlord in Ontario, you may be wondering what the tax system expects from you. The short answer is that the rent you collect is income, and the costs of earning it can usually reduce the amount you are taxed on.

This article walks through the basics: how rental income is reported, which expenses are deductible, how depreciation-style claims work, and the common situations where the usual rules change. Your own facts matter, so treat this as a map rather than a substitute for advice from an accountant or lawyer.

What you report and when

The CRA encourages landlords to report rental income and expenses on Form T776, Statement of Real Estate Rentals, although it also accepts other financial statements. All rental properties have a December 31 year-end, so you report income for the calendar year, from January 1 to December 31.

In practice that means keeping a clear record of rent received and every cost you pay for the property throughout the year. Good records make the form much easier to complete and help if the CRA ever asks questions.

Expenses you can usually deduct

The key distinction is between current and capital expenses. Current expenses are recurring costs with a short-term benefit and can usually be deducted in the year they are incurred. Capital expenses give a benefit over several years and are generally recovered over time through capital cost allowance (CCA).

• Interest on money borrowed to buy or improve the rental property is deductible.
• Insurance premiums paid on the rental property for the current year are deductible.
• Property taxes are deductible for the period the property was available for rent.
• Labour and materials for minor repairs and maintenance are deductible, but you cannot deduct the value of your own labour.

Capital cost allowance on the building

CCA lets you claim a portion of a building's cost each year. Land is not depreciable property, so you can claim CCA on the building but not on the land. Class 1 covers most buildings acquired after 1987, unless they belong to another class, and the CCA rate for Class 1 is 4%.

There is an important limit: CCA cannot be used to create or increase a rental loss. If you co-own the property, each co-owner enters only their own share of the CCA.

Situations where the rules change

For short-term rentals, a rental that was compliant by December 31, 2024 is deemed compliant for the whole 2024 tax year. Licensing and registration rules vary by municipality, so check your city's requirements.

Non-resident owners and GST/HST

If the landlord is a non-resident, the payer or agent, such as a property manager, must generally withhold 25% non-resident tax on the gross rent paid or credited for Canadian real property. The tax is due to the CRA by the 15th day of the month after the rent is paid or credited, and the payer gives the non-resident an NR4 slip. Residential tenants are the exception: the CRA does not expect them to know their landlord's residency or to withhold 25% of rent.

There are two ways the 25% can change. If Form NR6 is approved, 25% is withheld on net rent instead of gross, and until approval the withholding stays on the gross rent. A non-resident can also file a separate Section 216 return, which reports gross rent, taxes only the net rental income and claims the tax already withheld; the general deadline is two years from the end of the year the rent was paid or credited, and it is due much sooner if an NR6 was approved. If that return is not filed by its due date, the election is invalid and the CRA can assess tax on the gross rent.

On the sales tax side, long-term rentals of residential accommodation, meaning one month or more, are exempt from GST/HST, so you do not charge it and generally cannot claim input tax credits on related costs. Commercial rentals are different and are taxable.

What to do next

• Keep rent records and receipts for every expense, organized by calendar year.
• Separate current expenses from capital costs before you fill in the form.
• Note whether you co-own, rent to family, share your home or rent short term.
• Check municipal licensing rules if you rent short term.
• If the owner lives outside Canada, confirm who is withholding and remitting tax.
• Speak with an accountant or lawyer before making elections or claiming CCA.

Frequently asked questions