Rental Property Tax Deductions Landlords Can Claim in Ontario

Owning a rental property means tracking more than rent coming in. How you treat expenses, depreciation and eventually the sale all affect your tax bill, and some choices made in early years come back when you sell.

This article walks through the pieces that matter most to a small landlord: capital cost allowance, selling costs, capital gains, recapture and a few special situations. The details of which specific repairs count as current or capital expenses depend on the facts, so an accountant should confirm your own treatment.

Income, expenses and capital cost allowance

Rental income is reported to the CRA each year, and the CRA's guide for rental income (T4036) explains what to report and how. Capital cost allowance, or CCA, is the tax version of depreciation on a building. It lets you deduct part of the building's cost over time.

One limit to know is that CCA cannot be used to create or increase a rental loss. In practice, that means you can only claim it to bring your rental income down to zero, not below.

How much CCA makes sense for you depends on your situation, so it is worth confirming with an accountant. One reason is what happens later on a sale: CCA you claimed can be recaptured and added to income in full. That is covered below.

Current expenses versus capital costs

In general terms, a current expense is a cost of keeping the property running or restoring it to its condition, while a capital cost is spending that improves the property or adds something lasting. Where one ends and the other begins depends on what was done and why.

• Keep invoices that describe the work in detail, not just a total.
• Note whether the work fixed something that wore out or upgraded the property.
• Keep the purchase documents, because the cost of buying the property forms part of its cost base.
• Ask your accountant before claiming a large repair in one year.

Treating a capital improvement as a current expense can lead to a reassessment, so large jobs deserve a second opinion.

What happens when you sell

Selling a rental property for more than it cost may produce a capital gain, and the sale is reported on Schedule 3, Capital Gains or Losses. Your adjusted cost base (ACB) is usually the cost of the property plus the costs of buying it, such as commissions and legal fees. The gain is the amount by which proceeds exceed the ACB plus the costs of selling.

For 2025, the capital gains inclusion rate is generally one-half, so only half of the gain is added to taxable income. The proposed increase to two-thirds on individuals' gains above $250,000 a year was cancelled. Check the CRA's current pages for the year you sell.

Legal fees paid on the sale are deducted from the proceeds of disposition, not claimed as a rental expense.

Recapture and terminal losses

If the CCA you claimed in earlier years is more than the undepreciated balance left in the class when you sell, the excess is a recapture. It is added to income in full, not at the capital gains inclusion rate. That is why claiming CCA lowers tax now but can raise it on a sale.

There is also a loss rule that surprises people. Selling depreciable property such as a rental building cannot produce a capital loss, though a terminal loss may be deductible if no property is left in the class but undeducted CCA remains.

Special situations and next steps

• Change in use: each time you change a property's use, such as rental to personal use, you are treated as having sold it at fair market value, unless an election applies.
• Rental converted to principal residence: you can elect under subsection 45(3) to postpone reporting until you actually sell, but not if you, your spouse or common-law partner, or a qualifying trust claimed CCA after 1984.
• Part of your home rented out: you split the selling price between the residence and rental parts, report the gain on the rental part, and the rest can be designated as principal residence on Schedule 3 and Form T2091(IND).
• Non-resident sellers: you must notify the CRA no later than 10 days after the sale, and a certificate of compliance generally requires paying or securing 25% of proceeds minus the ACB.
• Buyers from non-residents: if no certificate is issued, the buyer may become liable for tax on the seller's behalf under subsection 116(5), and for depreciable property such as a rental building the amount is set under subsection 116(5.3). How much applies to a particular sale is worth confirming with a lawyer or accountant.

Before you sell or change how you use a property, talk to an accountant and, if the sale is complex, a lawyer.

Frequently asked questions