Rental Income Tax in Canada: Deductions & CCA

Rental income in Canada is taxed as regular income. Whether you own a single condo or multiple properties, the CRA requires you to report your rental revenue and allows you to deduct eligible expenses. Understanding which expenses qualify — and how Capital Cost Allowance works — can significantly reduce your tax bill.

How Rental Income Is Taxed

Net rental income (revenue minus expenses) is added to your other income on your T1 return and taxed at your marginal rate. It is reported on Form T776 (Statement of Real Estate Rentals). If you co-own the property, each owner reports their proportional share.

Rental income is not considered self-employment income, so CPP contributions do not apply (unless the CRA considers your rental activity a business). However, it is still subject to federal and provincial income tax.

Allowable Expense Deductions

You can deduct reasonable expenses incurred to earn rental income. The most common deductions include:

Property-Level Expenses

Property taxes: Municipal property taxes on the rental unit
Insurance: Property and liability insurance premiums
Repairs and maintenance: Plumbing, painting, appliance repair (must be repairs, not improvements)
Utilities: If you pay hydro, water, gas, or internet for the tenant
Condo fees: Monthly condo or strata fees (if applicable)
Property management fees: Fees paid to a property manager

Financing Costs

Mortgage interest: The interest portion of your mortgage payment is deductible (the principal repayment is not)
Loan origination fees: Can be amortized over 5 years
Mortgage insurance premiums: CMHC or other mortgage default insurance

Professional and Administrative

Accounting and legal fees: Tax preparation, lease drafting, dispute resolution
Advertising: Costs to find tenants (listings, signage)
Travel: Reasonable travel costs to inspect or manage the property

Capital Cost Allowance (CCA)

CCA is the tax term for depreciation. Residential rental buildings fall under CCA Class 1 with a rate of 4% on a declining-balance basis. This means you can deduct 4% of the building’s undepreciated capital cost (UCC) each year.

Important CCA rules:

Land is excluded: Only the building value qualifies for CCA, not the land. A common split is 70-80% building, 20-30% land.
Half-year rule: In the year you acquire the property, you can only claim CCA on half the net addition.
Optional claim: CCA is optional — you do not have to claim it, and many landlords choose not to because it creates a recapture obligation when the property is sold.

CCA Recapture

When you sell a rental property, any CCA previously claimed may be “recaptured” and added back to your income. If the sale price exceeds the original cost, you also face a capital gain on the difference. This double hit — recapture plus capital gain — is why many advisors recommend claiming CCA only if you need the deduction now and expect to hold the property long-term.

Rental Losses

If your deductible expenses exceed your rental revenue, you have a rental loss. Rental losses can generally be applied against your other income (salary, investment income, etc.) to reduce your overall tax. However, you cannot use CCA to create or increase a rental loss — CCA can only reduce rental income to zero.

The CRA may question rental losses if they persist for several years, particularly if the property is rented to family members below market rate or if personal use is involved.

Reporting on T776

Form T776 requires you to report:

Address and ownership percentage for each property
Gross rental revenue
Itemized expenses by category
CCA schedule (if claimed)
Net rental income or loss

If you own multiple properties, you can report them on a single T776 or separate forms. The CRA recommends grouping by property type (residential vs. commercial).

Bottom Line

Rental income tax in Canada is straightforward but requires careful expense tracking. Mortgage interest, property taxes, repairs, and insurance are all deductible. CCA offers additional depreciation deductions but comes with recapture risk on sale. Use our Rental Income Tax Calculator to estimate your net rental income after all deductions and taxes.