Ontario landlord tax guide: rental income, deductible repairs, mortgage interest, vacant periods, joint ownership, T776, CCA, GST/HST and selling.
You rent out a condo, a basement apartment or one room in your home. Is all the rent taxable? Can you deduct the mortgage? The answers depend on how you use the property and which costs belong to the rental.
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More Rental Rules for Shared Homes, Property Sales and Losses
Selling the rental: gain, recapture, flipping and closing costs
What Counts as Rental Income in Ontario?
Rental income is money you earn from letting someone use property you own or control. You normally report the rent and eligible rental expenses on Form T776 with your personal return. Rent is not automatically profit: you subtract qualifying costs, but mortgage principal and personal costs are generally not regular rental deductions.
Which Rental Property Expenses Can You Claim?
Find the situation closest to yours below. The answer explains the usual starting point; the detailed rules and exceptions come later.
Your situation | What it means | What to do next |
You rent an entire investment condo | Report rent and relevant rental operating expenses. | Gather lease, income and bills. |
You rent one room in your own home | Only a reasonable share of mixed costs generally belongs to the rental. | Keep floor-area and time-use records. |
You pay mortgage interest and principal | Interest may be deductible where financing relates to the rental; principal usually is not. | Separate the two on lender statements. |
You repair a leak or renovate a kitchen | Some costs are current expenses; major improvements can be capital. | Keep invoices describing the work. |
You sell the property | Capital gains, tax on prior depreciation and home exemption issues may arise. | Check rental periods and use changes. |
Rental Income Example: Calculating Profit After Expenses
You collect $24,000 rent on an investment condo. Eligible expenses might include $7,000 interest, $4,000 condo fees, $2,000 property tax and $1,000 insurance. The rough rental result is $10,000 before other allowable costs or adjustments. Monthly mortgage principal payments do not reduce that profit figure.
How to Report Rental Income on Form T776
Step 1: Record all rent, deposits and reimbursements correctly.
Step 2: Separate rental expenses from personal spending and loan principal.
Step 3: Check repairs, improvements and any capital cost allowance decision.
Step 4: Prepare T776 and keep records for a later sale or CRA review.
Rental Tax Terms Explained: CCA, Repairs and Change in Use
T776: The form used for many rental-income calculations.
CCA: Capital cost allowance—tax depreciation subject to special rules and possible recapture.
Change in use: When a property switches between personal living and income-producing purposes; it can trigger a tax event.
More Rental Rules for Shared Homes, Property Sales and Losses
What counts as rental income?
Rent from a condo, basement apartment, house, duplex or other real property is normally reportable. Include gross rent, qualifying rent-related reimbursements and other amounts treated as rental receipts under CRA rules. Security deposits are not automatically taxable revenue when received if properly refundable; amounts retained as rent or applied to damage can change the treatment. Short-term accommodation with substantial services may be business income requiring T2125 rather than ordinary property income on T776.
GST/HST consequences can differ dramatically between exempt long-term residential rental and taxable short-term accommodation. Record lease terms, dates, occupancy, deposits and every payment.
Filing T776 and ownership split
Form T776 records real-estate rental revenue and expenses and calculates net rental income or loss flowing to a personal T1. If co-owners simply own the property together, each generally reports the relevant share of income and expenses according to beneficial ownership; ownership percentages are not something to rearrange at filing time solely to save tax. A partnership has different legal and tax questions.
If one spouse paid the down payment but title is jointly registered, resulting tax attribution may require analysis of funding and beneficial interests. Track every property's income and expenses separately, then reconcile to the proper taxpayer.
Mortgage interest, principal and financing fees
Interest on borrowed money used for an eligible income-earning purpose can generally be deductible, subject to the income tax rules. The principal portion of each mortgage payment pays down debt and is not a rental operating expense. Example: a monthly $2,400 payment may contain $1,700 interest and $700 principal—the rental deduction is not automatically $2,400. Mortgage refinancing can change interest deductibility if borrowed funds are redirected to personal uses.
Some financing fees are deducted over a prescribed period rather than all at once. Keep annual lender statements and a clear tracing schedule when refinancing or using a line of credit.
Common deductible current expenses
Potential current deductions include property tax, building insurance, eligible utilities paid by the landlord, leasing commissions, advertising, reasonable property management fees, some professional fees, ordinary maintenance and eligible repairs. These are allocated to rental versus personal portions when necessary. If a building contains your home and a basement suite, use a defensible allocation based on square footage and shared areas, with time allocation where use changed during the year.
Personal living expenses and capital improvements are not immediately deductible simply because the property also earns rent. For a multi-property portfolio, keep property-level schedules.
Repairs versus capital improvements
Repairing a broken fixture to restore original function may be a current expense. A renovation that substantially upgrades the property, adds an extension or materially improves its enduring value may instead be capital. The facts, scope and timing govern, not just the invoice label. Repairs made immediately after acquiring a rundown property to make it suitable for renting may be capital even if similar repairs on a mature rental would be current.
Replacing part of a roof versus the entire roof can require judgment. Keep pre/post photos, contractor quotes, detailed invoices and an explanation of whether the work restored or improved the property.
What is CCA, and should you claim it?
Capital Cost Allowance is the tax depreciation system for qualifying depreciable property such as certain buildings, furniture, appliances or equipment; land is not depreciable. Claiming CCA may reduce current rental income, but generally cannot create or increase a rental loss. CCA on a building can trigger recapture on sale, and CCA claimed on a property also used as your principal residence can complicate principal-residence exemption analysis.
The appropriate class, additions, disposals, enhanced deductions and elections change over time. A maximum CCA claim now is not always the best lifetime-tax choice: model the sale scenario before claiming it.
Vacancy, non-payment, bad debts and losses
A genuine rental property may have a vacancy between tenants; eligible carrying costs may remain deductible when the property is held out for rent and circumstances support an income-earning purpose. If it was converted to personal use, rules differ. Unpaid rent and bad debts require attention to the accounting method and whether the amount was previously included in income.
An annual rental loss can be legitimate, but private-use elements or non-commercial arrangements are challenged. Property kept vacant while extensively renovated raises both timing and capital-versus-current questions. Document listing advertisements, communications with prospective tenants and dates of availability.
Personal residence to rental property and back
Changing an entire home from personal to income-producing use, or reversing it, may cause a deemed disposition at fair market value for tax purposes. The relevant change-of-use provisions, possible elections and principal-residence designation rules must be considered. A partial change (such as renting one room) may have exceptions depending on its significance, structural changes and CCA claims. Do not assume no taxable event occurs because title did not change.
Before moving out or moving back, document fair market value, adjusted cost base, improvement history, ownership dates and intended use, then get an individualized assessment.
Selling the rental: gain, recapture, flipping and closing costs
The sale can produce a capital gain based on proceeds, adjusted cost base and eligible selling costs, as well as recapture of previously claimed CCA. In some circumstances a terminal loss may arise. An investment property's sale is not automatically eligible for the principal-residence exemption; past residence years can change the calculation.
Residential property bought and disposed of within 365 days may fall under the federal flipping rule and be treated as business income, with exceptions for specified life events. A property held longer can still be business inventory if facts indicate trading activity. Preserve original purchase and legal costs, capital improvement invoices and closing statements.
Renting to family and at below-market rates
A rental to a relative is not automatically disallowed, but transactions below fair market value or undertaken for personal reasons can create restrictions or scrutiny. CRA distinguishes commercial profit-seeking arrangements from cost-sharing or personal accommodation. A taxpayer generally cannot manufacture a deductible loss by charging a child nominal rent and claiming full mortgage-related expenses. Save the lease, comparable market listings, actual deposits and evidence of normal landlord obligations. Family attribution, beneficial ownership and financing arrangements may matter too.
HST, short-term rentals and municipal rules
Long-term residential rent is generally exempt from GST/HST, so related expenses commonly do not produce ordinary ITCs. Short-term accommodation can be taxable, with special registration and platform considerations, and provincial or municipal licensing rules may apply. Recent federal income-tax rules also deny certain deductions for non-compliant short-term rentals, making local compliance essential to tax planning.
The exact city and property use affect the result; do not assume a short-term rental is taxed like a 12-month residential lease. When converting a unit, review HST, change-in-use and self-supply issues before spending on renovations.
Official sources and further reading
CRA: T776 rental statement. CRA: expenses you can deduct. CRA: current vs capital expenses. CRA: change from personal to rental use. Reviewed October 28, 2026.
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Need help applying these rules?
Presyz is a Toronto accounting and taxation firm serving individuals and small businesses. The examples above are educational, not a substitute for reviewing your transactions, filing year, documentary evidence and applicable law. Contact Presyz through this website for situation-specific accounting or tax assistance.
General educational information, not individualized tax, legal or financial advice. Verify current CRA requirements.