Investment Property Tax in Ontario: What Rental Owners Must Report

If you rent out a condo, a basement unit or a whole house in Ontario, the CRA treats the rent as income and treats a later sale as a separate event. Each has its own forms, lines and rules, and mistakes tend to show up years later.

This article walks through what landlords generally report each year, how expenses and depreciation work, and what changes when you sell. Your facts may differ, so treat it as a map and confirm the details with an accountant or lawyer.

Reporting rental income each year

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 with someone else, each co-owner reports their share of the rental income or loss according to their ownership share. It helps to agree on how rent and expenses are tracked so that both returns match.

Expenses and capital cost allowance

The CRA separates costs that give a short-term benefit from costs that last. Current expenses are generally deductible in the year you incur them, while capital expenses are deducted over time through capital cost allowance (CCA).

• You cannot use CCA to create or increase a rental loss.
• Each rental property acquired after 1971 with a capital cost of $50,000 or more must go in a separate CCA class.

What happens when you sell

A capital gain is the proceeds of disposition minus the property's adjusted cost base and any outlays and expenses of selling it. You report the sale on Schedule 3 and the taxable capital gain on line 12700. For 2025 the inclusion rate is 50%, so half of a capital gain is taxable. Confirm the rate for the year you actually sell.

CCA you claimed can come back. Recapture arises if the proceeds take the class's undepreciated capital cost below zero, and it is reported on Form T776 at line 9947. If the property sells for more than its cost, you may have both a capital gain and recapture.

The opposite can also happen. If a balance is left 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.

Short holds, changes of use and foreign rentals

Buying and selling quickly is taxed differently. Under the residential property flipping rule, profit on a housing unit in Canada owned for less than 365 consecutive days is deemed business income, the principal residence exemption is not available, and a loss is deemed to be nil. The rule does not apply to sales caused by listed life events or by the breakdown of a marriage or common-law partnership after at least 90 days living separate and apart.

If you move out of your own home and rent it, you are generally treated as having sold it at fair market value and bought it back at the same amount. When you turn your principal residence into a rental, you can elect not to be treated as having changed its use, by attaching a signed letter to your return for the year of the change. While the election is in effect, you can designate the home as your principal residence for up to four years, and you cannot claim CCA on the property. The four-year limit is removed when your employer relocates you, but only if the CRA's conditions are met.

For a rental property outside Canada, a Canadian resident must file Form T1135 if specified foreign property cost more than $100,000 at any time in the year, measured by cost amount rather than fair market value. A vacation home used mainly personally is excluded, but the same condo rented with a reasonable expectation of profit is not. Foreign income must be reported whatever the cost. A foreign tax credit may be available using Form T2209. Rules of the foreign country itself need advice from a tax adviser there.

What to do next

• Gather purchase and closing documents to support the adjusted cost base.
• Keep a running record of rent received and receipts for every expense.
• Separate repairs from improvements before you claim anything.
• Track CCA claimed by class, since it affects a later sale.
• Write down each co-owner's ownership share.
• If you own property abroad, note its cost and any foreign tax paid.

Before listing a rental for sale, or before moving back into one, speak with an accountant or lawyer. Timing and elections can change the result.

Frequently asked questions