Report rental results on Form T776
Rental property owners report their rental income and expenses on Form T776, Statement of Real Estate Rentals, which is filed with the personal return. Gross rent, each category of expense and the resulting net income or loss are shown separately, and co-owners each report their share.
Rental income includes rent received in money and in kind, and the CRA expects reasonable records: leases, rent receipts or deposit records, invoices for every expense and, where part of a property is rented, the basis for splitting costs between the rental and personal portions. The CRA also notes that expenses for renting part of your own home cannot be claimed if there is no reasonable expectation of profit.
Expenses you can generally deduct
The CRA’s list of deductible rental expenses includes advertising, insurance premiums for the current year, mortgage interest and bank charges, office expenses, legal and accounting fees, property management fees, repairs and maintenance, salaries and wages, property taxes, travel to collect rent or manage the property, utilities you pay, motor vehicle expenses in limited circumstances and other items such as condominium fees and landscaping. Prepaid expenses are claimed in the years to which they relate.
Only the portion that relates to earning rental income is deductible. When a property is partly personal, or a vehicle is used for both purposes, keep the calculation that supports the split. Legal fees paid to buy the property are not an expense; the CRA directs that they be added to the cost of the land and building.
Expenses you cannot deduct
The CRA is explicit that you cannot deduct land transfer taxes paid when you bought the property, repayments of mortgage or loan principal, penalties shown on a notice of assessment or the value of your own labour on repairs. Land transfer tax and purchase costs form part of the property’s cost instead, which matters when the property is eventually sold.
The CRA also limits deductions for short-term rentals that do not comply with local licensing or registration rules, with a specific calculation on Form T776. If you rent on a nightly basis in a municipality that regulates short-term rentals, confirm that the property is compliant before claiming expenses.
Current expense or capital expense?
A current expense is deducted in the year it is paid; a capital expense is added to the cost of the property and, for the building and equipment, recovered over time through capital cost allowance. The CRA’s criteria for the distinction are whether the cost gives a lasting benefit, whether it maintains the property or improves it beyond its original condition, whether it replaces a separate asset such as an appliance rather than repairing part of the building, how large the cost is relative to the property’s value and whether the work was done in anticipation of a sale.
In practice, repainting, fixing a leak and replacing a few shingles are usually current; a new roof, a finished basement or an addition are usually capital. The label on the contractor’s invoice does not decide the treatment, so describe the work when you send records to your accountant.
Use capital cost allowance with care
Capital cost allowance (CCA) lets you deduct the cost of a building and equipment over several years. The CRA states that you do not have to claim the maximum in any year and can claim any amount from zero up to the maximum, and that you cannot use CCA to create or increase a rental loss. Land is not depreciable.
The caution is what happens on sale. CCA claimed in earlier years can be brought back into income as recapture when the property is sold for more than its remaining undepreciated cost, and on a principal residence that is later rented, claiming CCA can affect the principal residence exemption. Whether to claim CCA, and how much, depends on your marginal rate now, your expected holding period and your plans for the property; it is a choice to make each year with advice rather than a box to tick.
Keep records that survive a review
Rental claims are among the most commonly reviewed items on personal returns. Keep leases, rent records, every invoice, mortgage statements showing interest separately from principal, property tax bills, insurance policies and the allocation used for any shared costs. Keep purchase and sale documents for as long as you own the property and for several years after it is sold.
A short annual summary that ties each T776 line to its supporting documents makes a review letter a filing exercise rather than a scramble.
Your conversation checklist
- Leases and a record of rent received for each unit
- Mortgage statements showing interest separately from principal
- Property tax bills and insurance policies
- Invoices for repairs, describing the work done
- Condominium fees, management fees and advertising costs
- Utility bills you paid on behalf of tenants
- Allocation for any personal-use portion of the property
- Purchase documents, including land transfer tax and legal fees
- Records of any CCA claimed in prior years
- Short-term rental licence or registration, if applicable
Further reading & sources
- CRA: Form T776, Statement of Real Estate Rentals
- CRA: Rental expenses you can deduct
- CRA: Current expenses or capital expenses
- CRA: Amount of capital cost allowance you can claim
Tax rules and administrative requirements can change. Check the applicable official guidance and confirm your circumstances with a qualified adviser. This guide is not an assessment of your filing, payment or legal obligations.