Updated October 3, 2026 · DF Property Management
The form: T776
Individuals who earn rental income from real estate report it on Form T776, Statement of Real Estate Rentals, filed with their T1 return. You complete a separate T776 for each rental property, and co-owners each report their share of income and expenses. Corporations report rental income on their T2 return instead, and partnerships have their own rules.
The CRA's guide T4036, Rental Income, is the reference. It's well written, and worth reading once in full if you own rental property.
Rental income or business income?
Most landlords earn rental income: they provide space and basic services such as heat, water, parking and maintenance. If you provide substantial additional services — cleaning, meals, security, a hotel-style operation — the CRA may treat it as business income, which is reported differently. A conventional long-term apartment, house or commercial lease is rental income.
What counts as income
- Rent from all units, including parking and storage you charge for.
- Additional rent from commercial tenants (CAM and tax recoveries).
- Amounts tenants pay for you, such as a utility bill paid on your behalf.
- Lease cancellation payments you receive.
Generally, rental income is reported on an accrual basis — in the year it's earned, not necessarily the year it's received. A last month's rent deposit isn't income until it's applied to the last month.
Deductible expenses
You can generally deduct reasonable expenses incurred to earn rental income, including:
| Category | Examples |
|---|---|
| Financing | Mortgage interest (not principal), bank charges, certain fees to obtain a mortgage (spread over five years) |
| Property costs | Property taxes, building insurance, condo fees |
| Operations | Utilities you pay, snow removal, landscaping, pest control, cleaning of common areas |
| Repairs and maintenance | Labour and materials for current repairs (not your own labour) |
| Professional fees | Accounting, legal fees for collecting rent or preparing leases, LTB filing fees |
| Management | Property management and administration fees |
| Other | Advertising, office expenses, reasonable travel and vehicle costs in some situations |
Not deductible: mortgage principal, the value of your own time, penalties and fines, and the purchase price and land transfer tax (those are added to the property's cost).
If you rent part of your own home, or rent to a relative below market, the rules change: expenses have to be apportioned, and renting below market can limit or remove your ability to claim a loss.
Current or capital?
This is the call that matters most. A current expense is deducted in full this year. A capital expense is added to the cost of the property and deducted gradually through CCA. The CRA looks at factors such as:
- Lasting benefit. Repainting a unit between tenants is current; a new addition is capital.
- Restore or improve. Replacing worn shingles with similar ones is generally current; replacing them with a materially better product may be partly capital.
- Part or separate asset. Repairing a furnace is current; buying a new furnace is generally capital.
- Size relative to the property. A large expense compared to the property's value is more likely capital.
- Condition at purchase. Repairs to make a newly bought property ready to rent are generally capital.
A full suite renovation before re-letting usually mixes both. Ask your contractors to itemize invoices so your accountant can split them properly. Our renovations service invoices this way by default.
Capital cost allowance (CCA) — the basics
CCA is the tax version of depreciation. Buildings and equipment are grouped into classes with prescribed rates; land is never depreciable, so the purchase price has to be split between land and building.
- Class 1 (4%) — most buildings acquired after 1987.
- Class 3 (5%) — certain older buildings acquired before 1988.
- Class 8 (20%) — appliances, furniture and equipment used in the rental.
- Class 13 — leasehold improvements, for tenants rather than owners.
Key rules:
- CCA is optional. You can claim any amount up to the maximum, or none.
- CCA cannot create or increase a rental loss, calculated across all your rental properties together.
- Each rental property costing $50,000 or more is generally placed in its own separate class.
- First-year rules (the half-year rule and the accelerated investment incentive) and new rates for purpose-built rental buildings have changed in recent years. Check the current T4036 for the year you're filing.
Rental losses and interest
If expenses exceed rent — common in the first years after buying with a large mortgage — the net rental loss can generally be deducted against other income, such as employment income, as long as there's a reasonable expectation of profit. CCA can't be used to create or increase that loss. Interest on money borrowed to buy or improve the rental is deductible; interest on a loan used for personal purposes generally isn't, even if the loan is secured against the rental. What the borrowed money was used for decides it, not what secures it.
Recapture and terminal loss
When you sell, the CRA compares the proceeds allocated to the building (up to its original cost) with the undepreciated capital cost (UCC) of its class:
- If proceeds exceed the UCC, the difference is recapture — added to income and fully taxable in the year of sale.
- If the building sells for less than the UCC and no property remains in the class, the difference is a terminal loss, deductible in full.
- Any proceeds above the original cost are a capital gain, taxed separately.
This is why claiming CCA isn't free money: it defers tax and can create a large recapture in the year you sell. For some owners, especially those planning a sale soon, claiming less makes sense. That's a conversation for your accountant.
Records to keep
- Leases, rent ledgers and deposit records.
- Every invoice and receipt, with the property it relates to.
- Purchase documents with the land/building split.
- A schedule of capital additions by year and class.
The CRA generally expects records to be kept for six years from the end of the tax year they relate to.
Owners we work with receive a monthly statement with every invoice attached and a year-end summary organized by T776 category, which makes the accountant's job — and yours — much shorter. Non-resident owners have additional rules: see non-resident landlords in Canada.
General information, not legal or tax advice. Tax rules change; confirm the current year's rules in the CRA's T4036 guide and with a qualified accountant.