Overview

Accountants-BC Ltd. is often approached with questions from new and experienced landlords alike, especially when it comes to how rental income is taxed, which is why we’ve created this blog as a guide.

In the sections that follow, you’ll learn how the CRA treats rental income, which forms you'll need when filing, and how your approach may differ depending on rental conditions. We’ll also cover the most common deductions and conclude with some essential recordkeeping tips.

Highlights

Introduction

When you’re filing rental income, it’s crucial to know where the lines are, including what qualifies, what you can claim, and how different types of rental use affect your return.

It’s information that’s not just useful on paper. It shapes how you manage your property, plan your spending, and protect your long-term financial goals. Applied well, it can reduce what you owe and give you a clearer picture of how your rental fits into your broader income strategy.

Do You Have Business or Rental Income?

Not all income from property is treated the same way on your tax return. What may look like straightforward rent could, in the CRA’s view, qualify as business income instead. That distinction influences how your earnings are taxed, what forms you’ll need to complete, and how you're expected to report expenses.

Rental income is typically considered basic and passive. You’re providing a space, collecting rent, and maintaining the property as needed. Business income, on the other hand, involves a level of activity that goes beyond basic ownership, turning your role into something more like a service provider.

Business income requires a different approach to both accounting and compliance. It’s subject to additional rules and often comes with greater scrutiny. Recognizing which category your property income falls under is the first step to staying on the right side of tax law.

Why Additional Services Point to Business Income

The difference between passive and active income often hinges on the services attached to the rental. It’s not always a clear line, which makes attention to detail essential.

The more services you provide alongside the rental, the more likely your income will be treated as business income. A furnished unit with utilities included might still qualify as rental income, but layering in routine cleaning, laundry service, stocked supplies, or flexible check-in arrangements starts to shift the nature of what you’re offering. Add in marketing, managing frequent turnover, or catering to short-term guests, and the CRA may see the operation as active rather than passive.

How Is Rental Income Taxed?

Rental income is treated as a separate category of income on your tax return. It’s included in your overall earnings for the year, but reported using its own forms and subject to specific rules. You’re required to declare the gross rental income you receive, then subtract allowable expenses to arrive at your net rental income, which becomes part of your taxable income.

The result is taxed at your marginal rate, just like employment or other sources of income. While this keeps the process relatively straightforward, it also means the tax impact depends on your total earnings for the year. The more rental income you earn, the more it can push you into a higher bracket, especially if you’re not making full use of available deductions.

How To Report Rental Income on Your Tax Return

Rental income is reported on Form T776, which is filed alongside your personal tax return. This form allows you to break down the income received, the expenses paid out, and any capital cost allowance you’re claiming. It applies to individuals, partnerships, and co-owners, though each person must file their share based on their ownership percentage.

You’ll begin by entering the total gross rent collected during the tax year, then move through the categories of expenses to calculate your net income. This figure is then transferred to your main return, where it’s added to your total income for the year. If your rental activities resulted in a loss, that too can be reported and may reduce your overall tax burden.

For shared properties, only your portion of the income and expenses should be included. The CRA expects each co-owner to file separately, using their own T776, which must reflect their share of the property. Keeping records that clearly separate joint and individual expenses is key to completing this step.

Uncollectible Rent

Uncollectible rent refers to amounts you were owed but didn’t receive, usually because a tenant stopped paying and moved out or was evicted. In certain cases, you can deduct this lost income from your rental earnings, but only if there’s no reasonable chance of being collected during the tax year.

To make the deduction, you’ll need to show that you made a genuine effort to collect the rent. This could involve written communication, formal notices, or legal action. The CRA requests documentation to support your claim, so you must keep clear records at all times.

GST/HST Rental Property Rebate

The GST/HST new residential rental property rebate offers some relief for landlords who paid GST or HST when purchasing or building a new rental unit. If the property is intended as a long-term residential rental, you may be eligible to recover a portion of the tax paid. This rebate is available only under certain conditions, and the amount you can claim depends on the property's value and how it’s used.

To apply, you'll need to submit the proper rebate application, usually Form GST524 or RC4231, along with your tax return or separately within the allowable timeframe. As always, documentation is key: Proof of tenancy, tax paid, and the intention to use the property as a residential rental must be clear.

Which Rental Expenses Are Tax-Deductible?

Many of the costs tied to owning and maintaining a rental property can be deducted from your rental income. The CRA allows these deductions to reflect the real expenses involved in generating income, but it’s important to distinguish between ongoing costs and those tied to long-term improvements. These are known as current and capital expenses, and they’re handled differently on your return.

Current expenses cover routine upkeep and day-to-day operations. Capital expenses, on the other hand, involve additions or upgrades that increase the life or value of the property, like replacing a roof or installing new flooring. While current expenses are deducted in full for the year they’re paid, capital expenses are claimed gradually over time through depreciation, or capital cost allowance (CCA).

Here are a few other examples that fall into either category:

  • Property taxes and insurance premiums
  • Utility costs paid by the landlord
  • Repairs to fixtures, appliances, or finishes
  • Advertising and legal fees related to tenants
  • Mortgage interest (not principal)
  • Property management or administrative fees

Claiming Capital Cost Allowance (CCA) Properly

Capital cost allowance (CCA) is the mechanism that lets you gradually claim the cost of certain property improvements or purchases over time. Rather than deducting the full amount in the year the expense occurs, you apply a percentage of the cost each year based on the type of asset.

Each asset falls into a specific CCA class, with its own set rate. For example, buildings typically fall under Class 1, which allows for a 4% deduction per year on a declining balance basis. Appliances, equipment, and certain renovations may fall into other classes with higher or lower rates.

Note that CCA can’t be used to create or increase a rental loss. That means if your other expenses already bring your net rental income close to zero, you may not be able to claim the full amount.

Recordkeeping Tips for Rental Property Owners

As you can see throughout the tax process, you need strong recordkeeping. From reporting income to claiming expenses and tracking capital work, the ability to support your figures with clear documentation is a serious asset. It’s also your best defense in the event of a CRA review, where verbal explanations carry far less weight than organized records.

The single most effective habit is to separate rental activity from your personal finances. Using a dedicated bank account and payment method helps you track every transaction without having to untangle mixed receipts later. It also allows you to spot inconsistencies early, stay on top of deductible costs, and reduce the risk of missed claims when it’s time to file.

A few other quick tips include:

  • Keep digital and physical copies of all rent receipts and lease agreements
  • Log maintenance and repair expenses with dates, amounts, and contractor info
  • Save invoices for appliances, upgrades, and capital improvements
  • Track utility bills if you pay them as the property owner
  • Record travel expenses related to property inspections or tenant meetings

Talk to a Tax Accountant About Your Rental Property

Knowing what to report, what to deduct, and how to stay compliant demands more time and understanding than many are prepared for. Working with a tax accountant from Accountants-BC Ltd. can help you feel confident in what you submit. We’re here to walk you through each part of the process and make sure nothing gets overlooked.

Get the guidance you need to file with certainty. Call (604) 683-2341.