Rental income in Canada is taxed as ordinary income at your marginal federal and provincial tax rates after you subtract eligible expenses, so what you actually pay depends on your total income and the deductions you claim. If you collect rent from a property you own or have use of, you must report it to the Canada Revenue Agency (CRA) and pay income tax on the net amount left over after deductions.
This guide breaks down exactly how the taxation of rental income works for the 2026 tax year, the rates that apply, the deductions most landlords miss, and the filing and recordkeeping rules that keep you out of trouble with the CRA.
What counts as rental income?
Rental income is the income you earn from renting out a property that you own or have use of . It is not limited to houses and condos. According to the CRA’s official guide, rental income includes amounts you earn from renting houses, apartments, rooms, office space, and other real or movable property .
You can earn rental income in three forms: cash or cheques, payment “in kind” (goods or commodities instead of cash), or services. If a tenant pays you in goods or services rather than money, you must report the fair market value of what you received as income.
So if you have ever asked, “Do you have to pay tax on rental income?“, the answer is yes. Rent you collect is taxable and must be reported, even when it is paid informally or in non-cash form.
Rental income vs. business income: why the difference matters
Before calculating tax, you have to determine whether your rental activity is income from property or income from a business. The CRA decides this based on the number and type of services you provide to tenants.
If you rent space and provide only basic services, heat, light, parking, and laundry, you are generally earning income from the property. Once you start providing additional services such as cleaning, security, and meals, the CRA may treat your operation as a business, and the more services you provide, the greater the chance it is considered a business. Most individual landlords fall into the “income from property” category and report on Form T776, Statement of Real Estate Rentals.
This distinction affects which guide and forms you use, how losses are treated, and whether different tax rules apply, so it is worth getting right from the start.
Rental income tax rate in Canada for 2026
There is no separate “rental income tax rate” in Canada. Net rental income is added to your other income and taxed at your regular marginal rates. For 2026, the federal rates and brackets are (CRA, 2026):
| Taxable income (federal) | Federal rate |
|---|---|
| $0 – $58,523 | 14% |
| $58,523.01 – $117,045 | 20.5% |
| $117,045.01 – $181,440 | 26% |
| $181,440.01 – $258,482 | 29% |
| Over $258,482 | 33% |
These rates apply on top of your provincial or territorial tax, which is set by your province of residence on December 31, 2026 (CRA, 2026). For example, Ontario’s 2026 rates run from 5.05% on the first $53,891 of taxable income up to 13.16% on income over $220,000, while British Columbia’s run from 5.06% to 20.5% (CRA, 2026).
A notable 2026 change: the lowest federal rate was reduced to a full 14%, applying to the first $58,523 of taxable income for every taxpayer regardless of total income (CRA, 2026). For landlords, this means the first slice of your net rental income is taxed slightly more lightly than in prior years.
Because Canada uses a marginal (progressive) system, only the portion of income that falls within each bracket is taxed at that bracket’s rate earning more never reduces your take-home pay. The tax rate on rental income in Canada is simply your top marginal rate applied to your net rental profit.
Determining rental income: how to calculate what you owe
Calculating the tax on real estate rental income follows a clear sequence on Form T776:
- Add up your gross rents. Report total gross rents on line 8299 of Form T776, then carry that figure to line 12599 of your income tax return .
- Subtract your deductible expenses (covered below).
- Arrive at your net rental income or loss, reported on line 9946 of the form and carried to line 12600 of your return .
Most landlords must calculate rental income using the accrual method you report income in the period you earn it and deduct expenses in the period you incur them, regardless of when cash actually changes hands. The cash method is only permitted if your result would be almost identical either way .
If you own a property with someone else, your share of the income or loss depends on your share of ownership, and co-owners report based on that percentage.
Deductions: the expenses that lower your rental tax bill
You can deduct any reasonable expense you incur to earn rental income . This is where good records translate directly into tax savings. The CRA splits expenses into two categories, and the distinction is critical.
Current expenses (fully deductible in the year)
Current expenses recur and provide a short-term benefit, they keep the property in the same condition it was in. You deduct these in full in the year you incur them. Common deductible current expenses include:
- Mortgage interest (the interest only, never the principal) on money borrowed to buy or improve the property
- Property taxes for the period the property was available for rent
- Insurance premiums for the current year
- Repairs and maintenance (labour and materials, but not the value of your own labour)
- Utilities you pay (gas, oil, electricity, water, cable)
- Advertising to find tenants
- Management and administration fees, and amounts paid to agents to collect rent or find tenants
- Professional fees, including legal fees to prepare leases or collect rent, plus bookkeeping, accounting, and tax-preparation fees
- Travel to collect rents, supervise repairs, or manage properties (excluding board and lodging)
Capital expenses (deducted over time through CCA)
Capital expenses provide a lasting benefit; they improve the property beyond its original condition or are separate assets. You cannot deduct these in full in one year. Instead, you claim them gradually as Capital Cost Allowance (CCA), a form of tax depreciation.
The CRA’s official test compares whether an expense restores the property (current) or betters it (capital). For example, repairing wooden steps is a current expense, but replacing wooden steps with concrete steps is a capital expense; painting the exterior is current, while installing vinyl siding is capital.
Most rental buildings acquired after 1987 fall into Class 1, with a CCA rate of 4% per year, while appliances and furniture typically fall into Class 8 at 20%. Two CCA rules trip up many landlords:
- The half-year rule: in the year you acquire a property, you can usually claim CCA on only half of your net additions to a class.
- CCA cannot create or increase a rental loss. You can claim anywhere from zero up to the maximum, but you cannot use depreciation to push your rental result into a loss.
A 2026 planning note: under proposed changes, eligible new purpose-built residential rentals that begin construction after April 15, 2024, and before 2031 may qualify for an accelerated CCA rate of 10%.
Expenses you cannot deduct
The CRA is explicit that the following are not deductible: land transfer taxes (add these to the cost of the property), mortgage principal repayments, penalties on a notice of assessment, and the value of your own labour.
Renting below market value and rental losses
You have a rental loss when your expenses exceed your gross rental income, and a genuine loss incurred to earn income can be deducted against your other sources of income. But there is a major catch: if you rent to a relative or friend for less than fair market value, the CRA treats it as a cost-sharing arrangement, and you cannot claim a rental loss. You can only claim a loss if you charge a relative the same rate you would charge an arm’s-length tenant and you reasonably expect to profit.
Short-term rentals: the non-compliant expense rule
Since 2024, landlords operating short-term rentals (residential property rented for under 90 consecutive days) face a strict rule. If your short-term rental is in a province or municipality that bans it, or requires a licence, permit, or registration that you do not hold, expenses tied to those non-compliant days are denied.
The CRA calculates a non-compliant amount that you cannot deduct, including the related CCA. If you run an Airbnb-style rental, confirming your local registration status is now a tax issue, not just a bylaw one.
Capital Cost Allowance (CCA)
CCA is optional depreciation. Most buildings are Class 1 (4%). Appliances/furniture often Class 8 (20%).
Key rules:
- Half-year rule in the acquisition year.
- Cannot create/increase a loss.
- 2026 Accelerated CCA: Eligible new purpose-built residential rentals (construction started after April 15, 2024, before 2031; available for use before 2036; at least 4 units or 10 suites with 90%+ long-term rentals) qualify for 10% CCA. Includes substantial renovations of commercial properties.
On sale, expect recapture of previously claimed CCA.
Principal Residence Exemption (PRE) and Change-in-Use Rules
A major consideration for many landlords is converting a principal residence to rental (or vice versa).
This triggers a deemed disposition at fair market value (FMV), which can create a taxable capital gain.
- Election under subsection 45(2): You can elect to defer the change-in-use for up to 4 years (while designating as PRE), but you generally cannot claim CCA during this period. File a signed letter with your return for the year of change.
- Partial rentals (e.g., basement) require reasonable allocation of expenses and may limit PRE.
- Claiming CCA on a former principal residence can reduce or eliminate PRE eligibility on sale.
- Use Form T2091 when selling to designate years.
Plan conversions carefully to maximize PRE and avoid unexpected capital gains tax.
GST/HST Considerations
Long-term residential rent is generally GST/HST-exempt, so landlords cannot claim Input Tax Credits on most expenses. However:
- New Residential Rental Property (NRRP) Rebate: Builders/landlords of qualifying new or substantially renovated multi-unit rentals may claim a rebate (up to 36% of GST or federal HST portion, with enhancements in some cases for larger projects).
- Commercial rentals or short-term (hotel-like) accommodations are usually taxable registration may be required if over $30,000.
- Change-in-use from personal to rental can trigger GST/HST self-supply rules.
Consult a professional for rebates and compliance, especially on new builds.
Non-resident and foreign landlords: 2026 rule change
If you live outside Canada and rent out Canadian residential property, important changes apply. Historically, a Canadian tenant or property manager had to withhold 25% of the gross rent and remit it to the CRA. With the enactment of Bill C-15 on March 26, 2026, effective retroactively to August 12, 2024, the responsibility to deduct, remit, and report withholding tax on private residential rentals paid by an individual tenant now shifts to the non-resident landlord (where no third-party property manager is engaged).
Commercial properties, payments made by companies, and arrangements involving a property manager remain under the existing withholding regime. Non-resident owners should review their compliance obligations carefully, as the administrative burden has moved squarely onto the property owner.
Filing and recordkeeping rules for 2026
Report your rental income on your personal T1 income tax return, with Form T776 attached, generally due by April 30, 2027, for the 2026 tax year. Two non-negotiable recordkeeping rules from the CRA:
- Keep every supporting document, invoices, receipts, contracts, because the CRA may disallow expenses you cannot substantiate.
- Retain records for six years from the end of the tax year to which they relate.
Expert insight: the recordkeeping mistakes that cost landlords the most
We asked Haseeb Hamdani, Manager of Bestax Accountants, which filing or recordkeeping mistake creates the most trouble for first-time landlords. His answer points to a problem that hides for years before it surfaces:
“The single most damaging one is rarely the thing that bites in year one. It’s the failure to build and substantiate the property’s cost base from day one, specifically the capital-versus-current expense distinction.“
He points to a second, equally avoidable failure he sees repeatedly when clients arrive after weak handling by a previous firm:
“Commingled bank accounts, personal and rental cash flowing through one account. Year one looks survivable; by the time of an audit or a sale it’s unreconcilable, and the landlord loses deductions purely because they can’t substantiate them.”
Both mistakes share a root cause: the records that would have protected the landlord were never built properly in the first place. This is exactly where disciplined, year-round bookkeeping pays for itself, separating accounts cleanly, classifying every expense as capital or current as it happens, and preserving the receipts that defend your numbers at audit or sale.
Get your rental bookkeeping done right
If you own rental property and want clean books, correct capital-versus-current treatment, and CRA-ready records, the team at Bestax Accountants can help. They provide bookkeeping, tax planning, GST/HST and new residential rental property rebate support, backlog cleanup, and CRA audit support for landlords and investors across Canada.
Quick FAQs
Do you have to pay tax on rental income in Canada?
Yes. Any rent you collect from a property you own or have use of is taxable income and must be reported to the CRA on your tax return, even if it is paid in cash, goods, or services. You pay tax only on the net amount after subtracting eligible expenses.
How much tax do you pay on rental income in Canada?
There is no special rate, net rental income is added to your other income and taxed at your marginal rate. For 2026, federal rates range from 14% on the first $58,523 of taxable income up to 33% on income over $258,482, plus your provincial or territorial tax.
Is rental income taxed differently from regular income in Canada?
No. Net rental income (income from property) is taxed at the same marginal rates as employment or other income. The difference is in how you calculate it: you report gross rent and deduct allowable expenses on Form T776 before the net figure is taxed.
How do I report rental income to the CRA?
You report it on Form T776, Statement of Real Estate Rentals, filed with your T1 personal return. Gross rents go on line 12599 and your net rental income or loss goes on line 12600 of your return.
What expenses can I deduct from rental income?
You can deduct reasonable current expenses such as mortgage interest, property taxes, insurance, repairs and maintenance, utilities you pay, advertising, management fees, and accounting fees. Capital costs like a new roof or appliances, are deducted gradually through Capital Cost Allowance.
Can I deduct my mortgage payment from rental income?
You can deduct the interest portion of your mortgage on money borrowed to buy or improve the rental property, but you cannot deduct the principal repayment.
What is the difference between a current expense and a capital expense?
A current expense recurs and simply restores the property to its original condition, so it is fully deductible in the year you incur it. A capital expense provides a lasting benefit or improves the property beyond its original condition, so it is deducted over several years through CCA.
Do I pay tax on rent if I rent below market value to family?
You report rent you actually receive, but if you rent to a relative below fair market value, the CRA treats it as a cost-sharing arrangement and you cannot claim a rental loss. You can only claim a loss if you charge market rent and expect to profit.
How long do I have to keep my rental property records?
You must keep all supporting documents, invoices, receipts, and contracts, for six years from the end of the tax year they relate to, in case the CRA asks to see them.
Do non-residents pay tax on Canadian rental income?
Yes. Non-resident landlords are taxed on Canadian rental income, traditionally through a 25% withholding on gross rent. Under Bill C-15, enacted March 26, 2026 (retroactive to August 12, 2024), the obligation to remit and report this tax on certain residential rentals now falls on the non-resident landlord rather than the tenant.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
