Canada has a large and growing rental property market. Whether you own one rental unit or several, the tax treatment of rental income is the same: you report gross rental income, deduct eligible expenses and pay tax on the net rental income at your personal marginal rate. Getting those deductions right — and understanding the HST rules that apply to your type of rental — makes a meaningful difference to your after-tax return. LevelTax works with landlords across Canada to prepare T776 rental income schedules and provide ongoing guidance on rental property tax compliance.
How rental income is taxed in Canada
Rental income is included in your personal taxable income for the year in which it is received or receivable. You report it on form T776 — Statement of Real Estate Rentals — which calculates net rental income after deducting eligible expenses.
Net rental income is added to all other sources of income on your T1 return and taxed at your marginal personal rate. There is no special rental income rate — it is taxed the same as employment or self-employment income.
Net rental losses can offset other sources of income in the same year, which is one of the reasons rental property ownership can reduce an individual’s overall tax bill in certain years — particularly when interest expense, property taxes and maintenance costs exceed rental revenue in early years.
What you can deduct against rental income
The expenses you can deduct against rental income are significant. This is where most landlords leave money on the table — either by not claiming all eligible expenses or by claiming non-deductible ones and triggering CRA review.
| Expense | Details |
|---|---|
| Mortgage interest | Interest on a mortgage for the rental property is deductible. The principal portion of your mortgage payment is not. |
| Property taxes | Annual property taxes paid on the rental property are fully deductible. |
| Insurance premiums | Home and landlord insurance costs for the rental property are deductible. |
| Repairs and maintenance | Costs to maintain the property in its current condition are deductible. Improvements that extend the useful life of the property or add value must be capitalized. |
| Property management fees | If you use a property manager, their fees are deductible. |
| Advertising costs | Costs to find tenants — online listings, photography, signage — are deductible. |
| Professional fees | Accounting fees related to the rental property, and legal fees for matters such as lease agreements, are deductible. |
| Capital Cost Allowance (CCA) | Buildings used to earn rental income can be depreciated using CCA, though claiming CCA on rental property is often deferred to avoid triggering recapture on sale. LevelTax advises on whether claiming CCA in any given year is beneficial. |
| Utilities (if paid by landlord) | If your lease requires you to pay utilities, those costs are deductible. |
| Condo fees and strata fees | Monthly maintenance fees for condominiums and strata properties are deductible. |
Not sure which of your expenses qualify?
LevelTax reviews rental property expenses and applies the correct treatment to each category before filing. Get in touch and we will walk through your specific property.
The T776 form: what it includes
Form T776 is a schedule on your T1 personal return that calculates net rental income for each rental property you own. You need one T776 for each property, or one for all properties if you report on an aggregate basis.
T776 asks for the property address, the type of rental (residential, commercial, other), your gross rental income for the year and your deductible expenses in each category. It then calculates your net income or loss, which flows to the main T1 return.
For properties where you and a partner own a percentage each, the income and expenses are allocated according to the ownership percentage and each owner reports their share on their own T1 return.
Short-term vs long-term rental: different tax rules
Long-term residential rental
HST exempt in most casesRent to the same tenant for more than one month at a time. This income is generally exempt from HST. Report on T776.
Short-term rental (Airbnb, VRBO)
HST applicable — may require registrationRenting for periods under 28 days. Revenue from short-term rentals counts toward your $30,000 HST registration threshold and may require you to charge and remit HST.
Commercial rental
HST applicable — registration required above thresholdRenting to a business rather than an individual. Commercial rents are taxable supplies for HST purposes.
Room rental in personal residence
Generally HST exemptRenting a portion of your own home. Rental income is reported on T776. A portion of home expenses (mortgage interest, property tax, utilities) is deductible based on the rental area percentage.
Short-term rental and the HST threshold
Revenue from short-term rentals counts toward the $30,000 HST registration threshold. If your Airbnb or VRBO income exceeds $30,000 in a rolling 12-month period, registration is mandatory. LevelTax advises on HST registration timing and handles the registration and ongoing filings for short-term rental operators.
Capital gains on rental property sale
When you sell a rental property, the gain is generally subject to capital gains tax. In Canada, 50% of capital gains are included in income (the inclusion rate was proposed to increase to 2/3 for gains over $250,000 annually for individuals — LevelTax monitors these legislative changes and advises clients accordingly).
If you claimed Capital Cost Allowance on the rental property, the CCA previously claimed may be subject to recapture when the property is sold. Recapture is fully included in income — not at the capital gains rate. This is one reason LevelTax advises many rental property owners to defer CCA claims, particularly when a sale may occur in the medium term.
The principal residence exemption does not apply to a rental property — unless a portion was your principal residence for some years. Mixed-use situations require careful calculation to determine the exempt and taxable portions of the gain.
Planning to sell a rental property?
LevelTax can model the capital gains exposure before you sell and advise on timing strategies. Get in touch before you complete the transaction.
Common mistakes on rental income returns
- Deducting the full mortgage payment rather than only the interest portion
- Claiming improvements as repairs when they must be capitalized
- Not reporting short-term rental income or believing it falls under the HST exemption for residential rentals
- Failing to pro-rate expenses when the property is only partly used for rental purposes
- Not keeping records of rental income and expenses throughout the year, making accurate reporting at tax time difficult
- Missing the requirement to file T776 for each rental property separately
LevelTax reviews every T776 for correct expense categorization, proper pro-ration for mixed-use properties and HST compliance before filing. We work with landlords who have one rental unit and landlords with several, applying the same level of care to each.
LevelTax rental income filing
LevelTax handles T776 rental income filings for Canadian landlords
From expense review and T776 preparation to HST registration for short-term rentals and capital gains planning — LevelTax handles the full rental property tax picture. Book a free consultation today.
Bottom line
Rental income is taxable, but the deductions available to Canadian landlords are substantial. Getting both sides right matters.
LevelTax prepares T776 rental income schedules for landlords across Canada as part of both personal T1 and corporate tax engagements. We apply the correct expense treatment, assess HST obligations for short-term rentals and advise on CCA decisions with the eventual sale in mind.
Talk to LevelTax about your rental property taxes