How Is Rental Income Taxed in Canada? Your Guide to Canadian Rental Property Tax

Owning a rental property in Canada can be a profitable venture, but there’s a serious side to it all. Rental income is taxed, and that means you’ll need to stay compliant to make your investment work for you.

This guide provides a comprehensive overview of rental income taxation in Canada, including tax rates, deductions, and provincial variations.

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Table of contents

What’s rental income like in Canada? Tax rates on rental income Federal tax rates (2024) Provincial tax rates across Canada Deductible expenses for rental properties Current expenses Capital expenses Capital Cost Allowance (CCA) in action Example: How rental income tax works in practice Reporting rental income and expenses Provincial variations in rental income taxation Tax considerations for non-residents Special situations landlords should know about Filing and record-keeping Making sense of your rental property taxes FAQs

What’s rental income like in Canada?

In Canada, rental income is considered fully taxable. This means that any income you earn from renting out property, be it residential, commercial, or vacation rentals, is added to your other sources of income, such as employment or business income, to determine your total taxable income for the year. The total income then decides your marginal tax rate, which depends on your income level and province of residence.

Is rental income considered business income?

Rental income can be classified as either income from property or business income, depending on the nature and extent of your rental activities.

If you’re simply renting out a property and your role is limited to collecting rent and handling basic maintenance, the income is usually considered income from property. But if you take a more active role in the operations, like offering additional services (cleaning, meals, security), managing multiple rental units as part of an organized business, or hiring staff to help, you may be considered to be earning business income. The Canada Revenue Agency looks at the scale and nature of your activities to determine the correct classification.

For example, imagine you rent out your basement suite to a tenant and only collect rent while taking care of occasional repairs. In this case, the CRA would typically treat it as income from property. However, if you own three rental homes, advertise them regularly, and provide short-term renters with cleaning services in between stays, the CRA could classify this as business income instead.

The distinction between income and property and business income is important because it affects the forms you need to file and the deductions you can claim. For instance, income from property is reported on Form T776 (Statement of Real Estate Rentals), while business income is reported on Form T2125 (Statement of Business or Professional Activities).

Tax rates on rental income

Rental income is taxed at your marginal tax rate, which means it’s taxed at the same rate as your next dollar of income based on your total earnings. This rate combines both federal and provincial tax rates, and it increases as your income rises.

Federal tax rates (2024)

• Up to $57,375: 15%
• $57,375 to $114,750: 20.5%
• $114,750 to $177,882: 26%
• $177,882 to $253,414: 29%
• Over $253,414: 33%¹

Provincial tax rates across Canada

While federal tax brackets apply nationwide, each province and territory adds its own set of income tax rates. Learning this combined tax burden is key for landlords when planning cash flow.

Below is a snapshot of 2024 provincial income tax brackets (lowest and highest) that apply to rental income. These amounts are combined with federal rates.¹

Province/Territory	Lowest rate	Highest rate
Alberta	8% on first $60,000	15% over $362,961
British Columbia	5.06% on first $49,279	20.5% over $259,829
Manitoba	10.8% on first $47,564	17.4% over $101,200
New Brunswick	9.4% on first $51,306	19.5% over $190,060
Newfoundland & Labrador	8.7% on first $44,192	21.8% over $1,128,858
Northwest Territories	5.9% on first $51,964	14.05% over $168,967
Nova Scotia	8.79% on first $30,507	21% over $154,650
Nunavut	4% on first $54,707	11.5% over $177,881
Ontario	5.05% on first $52,886	13.16% over $220,000
Prince Edward Island	9.5% on first $33,328	16.6% over 64,656
Quebec	14% on first $53,255	25.75% over $129,590
Saskatchewan	10.5% on first $53,463	14.5% over $152,750
Yukon	6.4% on first $57,375	15% over $500,000

These provincial rates are applied in addition to the federal rates, determining your overall tax liability on rental income.

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Deductible expenses for rental properties

The good news for landlords is that you can reduce your taxable rental income by claiming eligible expenses. The more you’re comfortable with tax deductions for rental property in Canada, the more effectively you can lower your tax bill. These expenses fall into two categories:

Current expenses

These are recurring expenses that provide a short-term benefit. They can be fully claimed in the year they are incurred. Examples include:

• Mortgage Interest: Deductible if the loan is used to finance the rental property.
• Property Taxes: Municipal and provincial property taxes are fully deductible.
• Insurance: Premiums for property insurance related to the rental property.
• Utilities: Costs for services like water, electricity, and heating, if paid by the landlord.
• Advertising: Expenses for advertising the rental property to find tenants.
• Professional Fees: Legal and accounting fees related to the rental property operations.

For more details on what may or may not be deductible, we recommend consulting a financial professional.

Capital expenses

These are expenses that provide a long-term benefit and are added to the property’s cost base. They are not fully deductible in the year incurred but can be depreciated over time through the Capital Cost Allowance (CCA). Examples include:

• Renovations and Improvements: Costs for significant upgrades (e.g., adding a new roof, renovating a kitchen) or additions to the property. Additionally, repairs like fixing a leaky roof, replacing a broken window, and painting between tenants are considered current expenses.
• Appliances and Furniture: New items purchased for the rental property.

The CCA allows you to deduct a portion of the cost of these capital assets each year, based on their class and depreciation rate.

Capital Cost Allowance (CCA) in action

CCA is how landlords deduct the cost of long-term assets. For example:

• A building might fall under Class 1 with a 4% annual depreciation rate.
• Appliances may fall under Class 8 with a 20% rate.²

For example, if you spend $5,000 on appliances for a rental unit, you can deduct 20% ($1,000) in the first year, and continue until the value is fully depreciated.

Important note: Claiming CCA reduces the property’s adjusted cost base. When you sell, you may need to pay back some of the deductions as “recapture.” Many landlords only use CCA when necessary to reduce taxable income in high-earning years.

Example: How rental income tax works in practice

To see how the rules play out, let’s walk through a simplified example:

Example 1: Small landlord in Ontario

• Annual employment income: $60,000
• Rental income (gross): $18,000
• Deductible expenses: $6,000 (mortgage interest, repairs, property tax, insurance)
• Net rental income: $12,000

Tax impact:
$12,000 is added to the $60,000 salary → total taxable income = $72,000.

About 30% of the rental income goes to taxes, so the landlord keeps around $8,400 after tax.

Example 2: High-income landlord in BC

• Employment income: $200,000
• Rental income (gross): $30,000
• Expenses: $10,000
• Net rental income: $20,000

Tax impact:
$20,000 is added to the $200,000 salary → total taxable income = $220,000.

At this level, almost half the rental income goes to taxes, so the landlord keeps about $10,000 after tax.

Reporting rental income and expenses

To report rental income and claim deductions, you must file the appropriate forms with the Canada Revenue Agency (CRA):

• Form T776: Used to report income and expenses from rental properties. This form helps calculate your net rental income or loss for the year.
• Form T2125: Used if your rental activities are considered a business, allowing you to report business income and expenses.

Don’t forget to maintain accurate records for all income and expenses related to your rental properties to support your claims and stay compliant with tax laws.

Provincial variations in rental income taxation

While the federal tax system applies uniformly across Canada, each province has its own tax rates and rules regarding rental income. Here’s a brief overview of how rental income is taxed in two major provinces:

Ontario

In Ontario, rental income is subject to both federal and provincial taxes. The provincial tax rates range from 5.05% to 13.16%, depending on income levels. Landlords can claim various deductions, including mortgage interest, property taxes, insurance, and utilities, to reduce their taxable rental income.

British Columbia

British Columbia also applies its own provincial tax rates, ranging from 5.06% to 20.5%. Additionally, BC offers a renter’s tax credit for low- and moderate-income individuals and families. For the 2024 tax year, this credit provides up to $400 for those with an adjusted income of $49,279 or less. The credit decreases for individuals and families with an adjusted income between $63,000 and $83,000.³

Tax considerations for non-residents

If you’re a non-resident of Canada earning rental income from Canadian properties, different tax rules apply. Generally, non-residents are subject to a 25% withholding tax on gross rental income.⁴ However, you can elect under Section 216 of the Income Tax Act to be taxed on your net rental income, which allows you to deduct eligible expenses before tax is applied.

To make this election, you must file a Canadian income tax return and submit the appropriate forms, such as Form NR6 (Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property).

Special situations landlords should know about

Some rental situations come with extra rules. Here’s what landlords should know to stay on top of their taxes and avoid surprises.

Co-ownership

If two or more people own a rental property, income and expenses must be split according to ownership share, not who actually collects the rent.

Short-term rentals (Airbnb, Vrbo)

Rental income from platforms like Airbnb is taxable in the same way as traditional rentals. However, if you provide significant services (daily cleaning, meals, concierge-like offerings), it may be considered business income. We recommend consulting a financial professional for clarity.

GST/HST and commercial rentals

• Residential rental income is exempt from GST/HST.
• Commercial rentals (offices, warehouses, retail) generally require landlords to charge GST/HST on top of rent. That tax must be remitted to the CRA.

Filing and record-keeping

The CRA requires landlords to keep detailed records for at least six years, including:

• Rent receipts or agreements
• Invoices for repairs, renovations, or services
• Mortgage statements and interest records
• Property tax bills and insurance policies

Using tools like QuickBooks or Excel can help track income and expenses more efficiently. Those receiving rent from international tenants or paying contractors abroad may find Wise Business useful for keeping payment records transparent and reconciling foreign exchange rates at the real mid-market rate.

Making sense of your rental property taxes

Taxes on rental income don’t have to feel overwhelming, as long as you brush up on your tax knowledge and do a little planning.

By accurately reporting income, claiming eligible deductions, and being aware of provincial variations, you can manage your rental property taxes like a pro. While our guide is a great starting point, always consult with a tax professional or accountant to check that you’re meeting all tax obligations and taking advantage of available deductions.

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FAQs

Do tenants pay tax on rent?

No, tenants do not pay tax on the rent they pay to landlords. However, landlords are responsible for reporting rental income and paying taxes on it.

What is rental income?

Rental income is the money earned from renting out property. It includes payments received from tenants for the use of residential, commercial, or industrial properties.

What are tax deductions for rental property in Canada?

Common tax deductions for rental properties include mortgage interest, property taxes, insurance premiums, utilities, advertising, and professional fees. Capital expenses can also be depreciated over time through the CCA.

How is rental income taxed in British Columbia?

Rental income tax in BC is subject to both federal and provincial taxes. The provincial tax rates range from 5.06% to 20.5%, depending on income levels. Landlords can claim various deductions to reduce their taxable rental income.

How is rental income taxed in Ontario?

Rental income tax in Ontario is subject to both federal and provincial taxes. The providential tax rates range from 5.05% to 13.16%, depending on income levels. Landlords can claim various deductions to reduce their taxable rental income.

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Sources:

1. Tax rates and income brackets for individuals | CRA
2. Capital Cost Allowance (CCA) and CCA Classes | TaxTron
3. B.C. renter's tax credit | Government of British Columbia
4. Filing and reporting requirements | CRA