If you earn rental income in Canada — from a house, condo, basement suite, or short-term rental — you need to report it to the CRA on Form T776. Here's what counts as income, what you can deduct, and where landlords most often get it wrong.
Reporting Rental Income: Form T776
Rental income is reported on Form T776 — Statement of Real Estate Rentals, filed with your T1. You report gross rental income, subtract your deductible expenses, and the net result is added to your other income at your marginal tax rate.
What You Can Deduct
- Mortgage interest (not the principal portion of your payment)
- Property taxes
- Insurance
- Repairs and maintenance (current repairs, not major improvements)
- Utilities, if paid by you as the landlord
- Property management fees
- Advertising for tenants
- Legal and accounting fees related to the rental
- Condo fees
⚠️ Repairs vs. improvements: Fixing a broken furnace is a current expense (fully deductible now). Replacing the whole roof or renovating a kitchen is usually a capital improvement, added to the building's cost and depreciated through CCA instead.
Capital Cost Allowance (CCA) on Rental Property
CCA lets you deduct depreciation on the building (never the land). Most residential rental buildings fall into Class 1, depreciated at 4% per year on a declining balance.
✅ Important restriction: CCA can reduce your net rental income to zero, but it cannot be used to create or increase a rental loss. If claiming CCA would put you into a loss, you're limited to the amount that brings income exactly to zero.
If you sell the property for more than its remaining undepreciated capital cost, the CCA you claimed is "recaptured" and added back to income in the year of sale — so claiming CCA is a deferral, not a permanent tax saving.
Short-Term Rentals (Airbnb / VRBO)
Since January 1, 2024, expenses for short-term rental income are not deductible if the property is operated in a province or municipality where short-term rentals don't comply with local licensing, permit, or registration requirements. If your municipality requires a short-term rental licence, make sure you have it — otherwise you could lose your expense deductions entirely, not just face a penalty.
Co-Ownership and Shared Properties
If you own a rental property with someone else (spouse, family member, business partner), each owner reports their proportional share of both income and expenses based on their ownership percentage — not necessarily 50/50 unless that reflects actual ownership.
Renting Part of Your Home
If you rent out a portion of your principal residence (like a basement suite), you must prorate expenses based on the rented space — usually by square footage. Renting part of your home can also affect your principal residence exemption when you eventually sell, since the rented portion may not fully qualify for the exemption on any capital gain.
Foreign Rental Property
If you own foreign rental property with a total cost over $100,000 CAD, you must also file Form T1135 — Foreign Income Verification Statement, separate from reporting the rental income itself.
Form T776
Report rental income and expenses with your T1
4% CCA (Class 1)
Depreciation on the building only, not the land
Short-term rentals
Must be licensed/compliant locally or expenses are denied
$100,000 CAD
Foreign property cost threshold requiring Form T1135
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