There is no 50% break on rental profit. Net rental income is added to your other income and taxed at your full marginal rate. What changes your result is the expense side — which costs are deductible now, which get added to the cost base, and whether depreciation creates a bill on sale.
Our charges include applicable taxes. Disbursements are extra and billed at cost — itemized upfront, in writing, never hidden.
From $563.87 taxes included
Individuals report on Form T776, Statement of Real Estate Rentals, filed with the T1. Income and expenses are split according to the ownership interest shown on title, not according to who collects the rent or whose bank account it lands in. If title is 50/50 with your spouse but one of you paid the entire down payment, the attribution rules can push the income back to the person who provided the funds. Sort ownership out at purchase, because fixing it later is itself a disposition.
Most residential landlords earn rental income, not business income. The distinction matters. Rental income means providing space and basic services. Once you add substantial services — cleaning between stays, linens, meals, concierge — the CRA can treat it as business income reported on Form T2125, which changes the deduction rules and brings CPP contributions into play on the profit.
Short-term rentals are where this bites. A furnished unit rented by the night with hotel-like services usually looks like a business. Federal rules also deny expense deductions for short-term rentals operated in contravention of a provincial or municipal restriction or licensing requirement — so an unlicensed Toronto or Ottawa short-term rental can lose its deductions entirely while the income stays taxable.
Deduct in the year you pay them: mortgage interest, property tax, insurance, condo fees, utilities you pay, advertising, property management, repairs and maintenance, and accounting or legal fees relating to earning the rental income. Mortgage principal is not deductible — only the interest. Neither is the value of your own labour.
Capital costs are not deducted; they are added to the property's adjusted cost base and reduce the eventual capital gain instead. The test is whether the work restores the property to its former condition or improves it beyond that, whether it is a separate asset or part of the building, and how the cost compares to the property's value. Repointing a chimney is current. Replacing a roof with a materially better one, gutting a kitchen, or adding a second unit is capital.
Costs of acquiring the property — land transfer tax, legal fees on closing, title insurance, survey — go into the cost base, not the expense column. Legal fees to draft leases, chase arrears or take a tenant to the Landlord and Tenant Board are ordinarily current and deductible.
Buildings generally fall into Class 1 with a 4% declining balance rate for residential rental property. Land is never depreciable, so the purchase price must be split between land and building on a defensible basis before any claim. Accelerated rates exist for certain newly built purpose-built rental housing, which is a genuine planning opportunity for a new build but does not help an ordinary resale duplex.
Two limits blunt the benefit. Capital cost allowance cannot create or increase a rental loss — you can bring net rental income to nil, no further. And every dollar of CCA claimed comes back as recapture, fully taxable as ordinary income, when the property sells for more than its depreciated cost. You are deferring tax at your marginal rate, not saving it.
The worst case is a property that was once your home. Claiming CCA voids the subsection 45(2) election, which is what lets you keep designating a rented-out former home as your principal residence for up to four more years. A modest annual deduction can cost you a slice of an otherwise entirely tax-free gain. Run the arithmetic before claiming, not after.
Long-term residential rent — a lease of a residential unit for one month or more — is exempt, so no HST is charged and no input tax credits can be claimed on the associated costs. Short-term accommodation of less than one month is taxable, and once your taxable revenue passes the $30,000 small supplier threshold over four consecutive quarters you must register and charge 13% HST in Ontario. Commercial rent is taxable regardless. Getting this wrong on a short-term rental means the HST comes out of revenue you already spent.
Generally no. Where rent is set below market to a family member, the CRA treats the arrangement as a cost-sharing rather than a profit-making venture, and denies the resulting loss. You report the rent as income but your deductions are limited to that amount, so the net result is nil rather than negative. The same reasoning applies to any rental with no reasonable expectation of profit. If the rent is genuinely at market and the loss is real, keep evidence of comparable market rents on file.
Only within limits, and the CRA scrutinises this. With a single rental property in the general area where you live, motor vehicle expenses are deductible only if you personally do part or all of the repairs and maintenance and use the vehicle to carry tools and materials — and expenses incurred to collect rents are treated as personal and are not deductible at all. Only once you own two or more rental properties can you deduct motor vehicle expenses to collect rents, supervise repairs and manage the properties, with a logbook to support the business portion. Travel costs to look at a property in another city, or to collect rent alone, are treated much more restrictively. Flights to inspect a Florida condo are not going to survive an audit.
Two things at once. Any capital cost allowance you claimed over the years is recaptured and taxed as ordinary income at your full marginal rate. Then the gain over your adjusted cost base — purchase price plus land transfer tax, closing legal fees and capital improvements, minus selling costs — is a capital gain, half of which is taxable. If the property was ever your principal residence, part of the gain may be sheltered. Model both numbers before you list, because the recapture is often the larger surprise.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.