- Current expenses can usually be deducted in the year you incur them, while capital expenses are recovered over time through capital cost allowance.
- Capital cost allowance can be claimed on a building but not on land, and it cannot create or increase a rental loss.
- Renting to a relative, renting part of your home, co-owning, or running a short-term rental can all change what you may claim.
If you rent out a basement, a condo or a whole house, you probably wonder which of your costs can reduce the rental income you are taxed on. The answer depends on what the cost is, what it does for the property, and how you rent it out.
This article walks through the common deductions for Ontario landlords, the difference between current and capital costs, and the situations where the usual rules change. It is general information, and an accountant can confirm how it applies to your numbers.
How rental income is reported
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 for the calendar year, January 1 to December 31.
Keep receipts, invoices, loan statements and a simple record of rent received. Good records make it much easier to support each deduction if the CRA asks.
Current expenses versus capital expenses
Current expenses are recurring costs with a short-term benefit, and they can usually be deducted in the year you incur them. Capital expenses give a benefit over several years and are generally recovered over time through capital cost allowance, or CCA.
Fixing a leaking tap is the kind of cost that tends to be current. Replacing a whole structure or adding to the property tends to be capital. Where a job falls between the two, an accountant can help you decide how to treat it.
Common deductible costs
- Interest on money borrowed to buy or improve the rental property.
- Insurance premiums paid on the rental property for the current year.
- Property taxes for the period the property was available for rent.
- Labour and materials for minor repairs and maintenance.
There is one catch on repairs: you cannot deduct the value of your own labour. For minor repairs and maintenance, you can deduct labour you pay for and the cost of materials, but not the value of your own time. Larger work that gives a benefit over several years is generally a capital expense recovered over time through CCA.
Capital cost allowance and its limits
CCA lets you deduct part of the cost of a building over time. Land is not depreciable property, so CCA can be claimed on the building but not on the land. Class 1 covers most buildings acquired after 1987, unless they belong to another class, and its CCA rate is 4%.
CCA has a firm limit: it 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. How CCA applies to your situation depends on the facts, so it is worth confirming with an accountant before deciding how much to claim.
Situations where the rules change
| Situation | What changes |
|---|---|
| Renting to a relative below market rent | If expenses keep exceeding the rent, the CRA treats it as a cost-sharing arrangement and no rental loss can be claimed. |
| Renting part of your own home | Only expenses for the rented area can be claimed, and shared costs like property taxes and insurance are split by floor area or number of rooms. |
| Co-owners | Each co-owner enters only their own share of the CCA. |
| Turning a principal residence into a rental | The owner can elect not to be treated as having started to use it as a rental property, which avoids a deemed sale. |
| Non-compliant short-term rental | From January 1, 2024, deductions including CCA and interest are denied for a short-term rental that is not allowed at its location or lacks required registration, licence or permit; the denied portion is prorated by non-compliant days. |
For 2024, a short-term rental that was compliant by December 31, 2024 is deemed compliant for the whole 2024 tax year. Registration and licensing rules vary by municipality, so check what applies where your property is.
What to do next
- Gather rent records, receipts, mortgage interest statements, insurance and property tax bills for the calendar year.
- Sort each cost into current or capital.
- Separate personal use from rental use if you rent only part of your home.
- Confirm any short-term rental licence or registration requirements with your municipality.
- Ask an accountant or lawyer before claiming CCA or converting a home into a rental.
Frequently asked questions
Can I deduct the work I do myself on my rental property?
No. You can deduct labour and materials for minor repairs and maintenance, but not the value of your own labour. Amounts you pay to others and the cost of materials can qualify.
Do I have to claim capital cost allowance?
Capital expenses are generally recovered over time through CCA. Whether you need to claim it in a given year depends on your situation, so it is worth confirming with an accountant. If you do claim it, it cannot be used to create or increase a rental loss, and it applies to the building but not the land.
I rent a room in my own home. What can I deduct?
Only the expenses for the rented area can be claimed. Shared costs such as property taxes and insurance are split by floor area or by number of rooms.
Which form do I use to report rental income?
The CRA encourages landlords to use Form T776, Statement of Real Estate Rentals, though it also accepts other financial statements. Rental income is reported for the calendar year.
Sources
- CRA Guide T4036, Rental Income — canada.ca
- CRA – Changes to rules for eligible deductions from short-term 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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