Only interest portion is deductible (not principal).
Capital Cost Allowance (optional, 4% Class 1 for buildings).
Annual Rental Income
$30,000.00
Net Rental Income
$9,200.00
Tax on Rental Income
$2,727.80
After-Tax Cash Flow
$6,472.20
Monthly Cash Flow
$539.35
Common questions about rental income taxation in Canada
Rental income is reported on Form T776 (Statement of Real Estate Rentals) as part of your personal tax return. You must report all rental income received during the year and can deduct eligible expenses. If you co-own the property, each owner reports their share of income and expenses proportionate to their ownership interest. Net rental income is added to your other income and taxed at your marginal rate.
Common deductible rental expenses include: mortgage interest (not principal), property taxes, insurance premiums, repairs and maintenance, advertising, property management fees, utilities (if included in rent), legal and accounting fees, travel to the rental property, and office supplies. Capital expenses (improvements that extend the life of the property) cannot be deducted immediately but may be claimed through CCA (Capital Cost Allowance) over time.
CCA allows you to deduct a portion of the cost of your rental building each year. Most rental buildings fall under CCA Class 1 (4% per year on a declining balance basis). However, be cautious: claiming CCA can have tax implications when you sell the property, as CCA claimed must be "recaptured" (added back to income). Also, CCA on a rental property cannot create or increase a rental loss -- it can only reduce net rental income to zero.
Yes, net rental losses (after all allowable deductions except CCA) can offset other sources of income such as employment income or business income. However, CRA may scrutinize rental losses, especially if the property is rented to a family member at below-market rates or if there is no reasonable expectation of profit. Losses from RRSP-financed properties may be subject to attribution rules.
If you convert your principal residence to a rental property, you can make a Section 45(2) election to defer any capital gains for up to four years (or longer if you relocate for work). During this period, the property is still considered your principal residence. When you sell, the gain during the principal residence period is tax-free, but gains during the rental period are taxable. You cannot claim CCA while the Section 45(2) election is in effect.
Non-residents earning Canadian rental income must have 25% of gross rents withheld by the payer (tenant or property manager) and remitted to CRA under Part XIII. Alternatively, you can file Form NR6 to have withholding based on net rental income instead of gross. You should also file a Section 216 return to pay tax on net rental income at graduated rates, which usually results in a refund of the excess withheld.
When you sell a rental property, any capital gain (sale price minus adjusted cost base minus selling expenses) is subject to capital gains tax. Additionally, any CCA previously claimed must be "recaptured" as income (up to the original cost). The capital gain is included at 50% (or 66.7% above $250K), while CCA recapture is 100% taxable. You can defer capital gains using a reserve if proceeds are received over multiple years.
Long-term residential rent (one month or more) is generally exempt from GST/HST. However, short-term accommodations (less than one month, such as Airbnb) are taxable. If you earn more than $30,000 annually from short-term rentals, you must register for and collect GST/HST. Commercial and industrial rental income is always subject to GST/HST.
CRA-Aligned: This calculator uses official CRA rates for the 2025 tax year. Tax on rental income is calculated at your marginal rate. Consult a tax professional for personalized advice regarding rental property deductions.
How rental income is taxed and what landlords can deduct
How do you calculate taxable rental income?
Start with your gross rental income for the year, then subtract all allowable expenses. If you earned $30,000 in rent and had $18,000 in deductible expenses, your net rental income is $12,000. This $12,000 is added to your other income and taxed at your marginal rate. You report it on Form T776 of your tax return.
What are the most common rental deductions?
The biggest deductions are usually mortgage interest (not the principal), property taxes, insurance, and repairs. Other deductions include advertising, utilities (if you pay them), property management fees, legal and accounting fees, office supplies, and vehicle expenses for property-related travel. Improvements that increase property value are not immediately deductible — they must be depreciated over time.
What is the difference between a repair and an improvement?
A repair restores the property to its original condition — for example, fixing a leaky tap, repainting a wall, or replacing broken tiles. Repairs are fully deductible in the year they occur. An improvement enhances the property or extends its useful life — for example, adding a new bathroom, installing a new roof, or upgrading the kitchen. Improvements are added to the property cost and depreciated using CCA.
Can you deduct a rental loss?
Yes. If your rental expenses exceed your rental income, you can use the loss to offset other income, such as employment or business income. However, the CRA requires that you have a reasonable expectation of profit. If you consistently rent below market rate to a family member, the CRA may deny your losses. Keep your rental arrangement on a commercial basis.
Do you need to charge GST/HST on rent?
Long-term residential rent (one month or more) is exempt from GST/HST. You do not charge GST/HST to your tenants, and you cannot claim input tax credits on expenses related to the rental. However, short-term rentals (less than one month, like Airbnb) are subject to GST/HST if your total short-term rental revenue exceeds $30,000 per year.
What about the principal residence change-of-use rules?
If you convert your home to a rental property, the CRA treats it as a deemed disposition at fair market value. This can trigger capital gains tax on any increase in value. However, you can elect under subsection 45(2) to defer this deemed disposition for up to four years. You must file the election letter with your tax return for the year of the change of use.
How does the Underused Housing Tax affect rental properties?
The Underused Housing Tax (UHT) is a 1% annual tax on the value of vacant or underused residential property owned by non-resident, non-Canadian owners. Canadian citizens and permanent residents who own property personally are generally exempt. However, properties owned through certain corporations or trusts may need to file a UHT return even if exempt from the tax.
CRA-Aligned: Based on 2025 CRA rates and thresholds. For personal advice, speak to a qualified accountant or tax professional.
Disclaimer: This calculator provides estimates based on current CRA rates and thresholds for the 2025 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified accountant before making financial decisions. Read our terms
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