Rental property is a popular investment across the GTA, but many landlords leave money on the table, or create problems for later, by getting the tax side wrong.
Reporting rental income
Rental income from property you own personally is reported on Form T776 with your personal tax return. You report the gross rent you received and subtract eligible expenses. If you own the property with a spouse or partner, each of you reports your share.
Common deductible expenses
- Mortgage interest (not the principal portion of your payments)
- Property taxes and insurance
- Utilities you pay for the tenant
- Repairs and maintenance
- Property management and condo fees
- Advertising and legal or accounting fees
Repairs vs. improvements
Repairs that restore something to its original condition, like fixing a leak, are generally deductible right away. Improvements that make the property better than it was, like a new kitchen or a basement finish, are capital expenses. They’re claimed gradually through capital cost allowance (CCA).
The CCA trap
CCA (depreciation on the building) is optional, and it can’t be used to create or increase a rental loss. Claiming it lowers your tax now, but when you sell, the CCA you claimed may be added back to your income as recapture. It’s a timing decision worth discussing before you claim.
Renting part of your own home
If you rent out a basement or room, you can deduct a reasonable share of your home expenses based on the space rented. Keep the rental arrangement modest and don’t claim CCA on your home without advice, because it can affect your principal residence exemption.
HST and short-term rentals
Long-term residential rents are generally exempt from GST/HST. Short-term rentals, such as stays of less than a month, can be taxable. If that income passes the $30,000 small-supplier threshold, you may need to register.
When you sell
Selling a rental property usually creates a capital gain, and only 50% of the gain is taxable. Keep records of your purchase price, closing costs and capital improvements, because they reduce the gain.
Own a rental property? See our plans and pricing or contact Wealth Street Services. We’re in Brampton and serve clients across Canada.
Sources
- CRA: When to register for and start charging the GST/HST
- Questrade: Capital gains inclusion rate update
This article is general information, not tax or financial advice. Rules and amounts change, so confirm details with the Canada Revenue Agency or speak with our team about your situation.
