Rental Property Tax Guide
Learn how rental income, expenses, CCA, capital gains and CRA reporting work for Canadian landlords.
The short version
- Rental income goes on form T776 with your personal return: rent minus deductible expenses.
- Repairs are deducted in the year; improvements are added to the cost of the property.
- Capital cost allowance (CCA) on the building is optional, can't create a rental loss, and comes back as taxable recapture when you sell.
- Since 2024, short-term rentals that break local licensing rules lose their expense deductions.
- When you sell: recapture is fully taxable, the capital gain is half taxable.
Rental Property Taxes in Canada: What Landlords Actually Need to Know
Being a landlord means you have two jobs: fixing furnaces at 2 a.m., and keeping records that will survive a CRA review. Most people are better at the first one. This page is about the second.
Reporting Rental Income on T776
Individual landlords report gross rent and expenses on form T776, Statement of Real Estate Rentals, attached to their personal return. Co-owners each report their share. The net result is added to your other income and taxed at your normal rates (see the 2026 tax brackets), and a net rental loss can generally reduce your other income, if the rental is a real business with a reasonable expectation of profit.
Renting to family below market rent is a classic trap: CRA can deny the loss if the arrangement isn't commercial; see rental losses. What counts as income, including deposits and services instead of rent, is on rental income tax. Renting a room or basement in the home you live in has its own rules; see renting part of your home.
Deductible Rental Expenses
- Mortgage interest (not the principal) on money borrowed to buy or improve the rental.
- Property tax, insurance, utilities you pay, condo fees.
- Repairs and maintenance, advertising, legal and accounting fees, property management.
- For a unit in your own home, the rental share of these costs, split by floor area or another reasonable basis.
Not deductible: the value of your own labour, the principal part of mortgage payments, land, and personal-use costs. The line-by-line list is on rental property expenses.
Repairs or Improvements?
This is where CRA reviews concentrate. A repair restores the property to what it was: fixing a leak, replacing a few shingles, repainting. That's deducted this year. An improvement makes it better or extends its life: a new roof with better materials, an addition, a full kitchen rebuild. That's added to the cost and depreciated through CCA. Ask yourself: “Did I put it back, or did I make it better?” Ninety percent of the time, that answers it. CRA's full five-question test, with common jobs sorted, is on repairs vs improvements.
Repair or improvement? Ask it straight
Describe the work and the amount. The assistant tells you how CRA usually treats it, which form and line it goes on, and the rule behind it.
CCA: Depreciation That Comes Back
A rental building is usually class 1, at 4% a year on the declining balance (for a building acquired in 2025 or later and rented before 2030, the reaccelerated investment incentive allows about 6% in the first year instead of the usual 2%). Each rental property costing $50,000 or more goes in its own class. Land is never depreciable. Two rules people miss:
- CCA can't create or increase a rental loss. It can only bring net rental income down to zero.
- It comes back when you sell. If you sell for more than the building's remaining tax value, the CCA you claimed is added to income in full as recapture.
Claiming CCA is still often worthwhile, since you get the deduction now and pay it back later, but go in with your eyes open. The details, including the 10% rate for new purpose-built rentals, are on CCA on rental property.
Short-Term Rentals (Airbnb and Similar)
Starting in 2024, if your short-term rental is in a province or municipality that requires a licence, permit or registration and you don't comply, the expenses (including CCA) are not deductible. The T776 now has a line for exactly that. Short-term rentals of a residence for less than a month can also be taxable for GST/HST, so the $30,000 registration test applies; see our guide to the $30,000 GST/HST small supplier rule. The full host guide, with the expense split and the principal residence question, is on Airbnb taxes in Canada.
Selling the Rental
The sale splits into land and building. The building's CCA comes back as recapture (fully taxable) or, if it sold for less than its remaining value, a terminal loss (fully deductible). The rest is capital gain, half taxable. Our full guide to capital gains tax on rental property works through an example, and the rental property sale calculator runs your numbers.
Lived in it at some point? Part of the gain may be sheltered by the principal residence exemption, and a change of use may already have counted as a sale. See the Canadian real estate tax guide.
Sold a rental? Get the exact numbers for your return
The rental sale SmartFile works out recaptured CCA and the capital gain, estimates the tax, and prints the T776 and Schedule 3 lines.
Five Landlord Mistakes CRA Finds
- Expensing a new roof or a full renovation as a “repair.”
- Claiming CCA to create a loss.
- Losses year after year on a unit rented to family at below-market rent.
- Forgetting to report the rental at all, or the sale of it.
- No receipts. CRA's position on undocumented expenses is short and not in your favour.
Before you file, check your return for these.
Rental Property Tax Questions
How is rental income taxed in Canada?
Net rental income (rent minus deductible expenses) is added to your other income on your personal return, reported on form T776, and taxed at your normal federal and provincial rates.
Can I deduct mortgage payments on a rental property?
Only the interest part. The principal repayment is not deductible.
What CCA rate applies to a rental building?
Most rental buildings are class 1 at 4% a year on the declining balance, with half the normal amount in the year you buy it. Each rental property costing $50,000 or more goes in its own class.
Can CCA create a rental loss?
No. CCA on rental property can only reduce net rental income to zero.
Are Airbnb expenses deductible?
Yes, if the short-term rental complies with local licensing or registration rules. Since 2024, expenses of non-compliant short-term rentals are not deductible.
Sources: CRA, Guide T4036 Rental Income; Form T776 (including the short-term rental line). Checked October 2026.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.