How to File Your Rental Income Taxes

If you’re a landlord, it’s important to understand how to file your rental income come tax time. Whether you’re renting out a basement apartment or an investment property, you’ll need to report your rental income. This is done by completing Form T776, Statement of Real Estate Rentals.

If you’re filing your own income tax, you’ll need to fully understand the form to properly file your taxes; the last thing you want to do is get audited by Canada Revenue Agency (CRA).

Tax Treatment of Rental Income

Similar to income earned from self-employment, you’ll need to report rental income earned in a calendar year. If you work a regular 9 to 5 job, you’re probably used to taxes being deducted at source by your employer. However, since taxes aren’t deducted from each rent cheque received from your tenants, you’ll need to pay your fair share of taxes come April 30th. The advantage of rental income is that you’re able to write off a percentage of the expenses related to your rental property.

Completing Form T776, Statement of Real Estate Rentals

If you’re the sole owner of a rental property, completing the first part of Form T776 is pretty straight forward. After you’ve completed your basic personal information, you’ll start by entering your gross rents under the income section. For example, if you receive rental income of $700 per month for your basement apartment from January to December, your gross rental income for the year would be $8,400.

Claiming Your Expenses

The next section of the form is for claiming your expenses related to your rental property. Expenses are claimed on a cash basis (not an accrual basis). That means your expenses are claimed when you actually paid for them. For example, if you paid your hydro bill in December 15, 2012, you’d claim the expense on your 2012 income tax return, but if you paid your water bill on January 25, 2013, you’d wait until your 2013 income tax return to claim it.

Before completing your expenses, it’s important to understand there are two columns you’ll need to complete: total expenses and personal portion. If you have a rental property that’s 100% rented out to tenants you won’t have any personal portion, but if you live in your principal residence and rent out the basement, you’ll need to enter your total expenses for the year and allocate the amount for your personal portion. You can estimate the percentage of your house rented out. For example, if you rent out the basement in a bungalow, it’s probably reasonable to claim 50% to 60% as personal.

Here are the most common expenses you’ll claim:

  • Advertising – For example, if you put an advertisement in the local newspaper to attract tenants, you can claim 100% of the expense.
  • Insurance – This is for home insurance paid on your property.
  • Interest – You can claim mortgage interest (not principal) paid.
  • Property Taxes – Even if your property taxes were prepaid by the seller when you purchased your house, you can claim a portion here.
  • Utilities – Heat, hydro, water, etc.

Maintenance and Repairs vs. Capital Cost Allowance (CCA)

It’s important to understand whether an expense is current or capital. Canada Revenue Agency’s (CRA) website has a helpful questionnaire to determine where an expense should fall under.

According to CRA, renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital expenses. For example, painting your rental unit is probably considered current and should be claimed under maintenance and repairs, since it’s an expense that usually recurs after a short period. Meanwhile, a capital expense generally gives a lasting benefit, such as reroofing your house. Another important decision is whether to claim CCA at all. Although claiming CCA reduces your taxable income for that year, when you sell your property previous CCA claims will be recaptured and taxed accordingly.  Here is more information on how capital cost allowance works.

Once you’ve entered your expenses, at the bottom of the form is your net income (or loss). This final amount is reported on line 126 of your income tax and benefit return. Once you’ve completed the form the first time you’ll get the hang of it. As long as you keep your receipts and bills organized, you should have no problem filing your rental income taxes every year.

About the AuthorSean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.

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Sean Cooper

Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.
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Jeff
3 years ago

Not very clear. If I pay my cable bill due on May 10 with my credit card which is not due until Jun30, I actually don’t pay my cable bill until June 30. There are many other scenarios that can drive you crazy. CRA tells me to use the due date as the date I receive rent. But some renters pay months ahead of time and then some will add one more night to the rental last minute and pay a few weeks after the booking is over. It is incredibly mind boggling how contorted this accounting has become. Now I also have to convert from US dollars to Canadian , and I use the date the transaction takes place. I have stopped listening to the “cash” or “accrual” systems. I just show all my expenses and all the income in a consisted way and the government gets all its money. You can spend months trying to conform to the fine details of what they tell you to do and the final numbers are almost the same. I don’t think anyone will spend thousands on getting the accounting “right” and save no money at all but give it all to the accountant. CRA has also told me , I can use the yearly exchange rate or the monthly exchange rate or the daily rate. I use the daily rate because that is the way I started my spread sheets. So depending on which exchange rates you used can make thousands of dollars difference. I have come to the conclusion that is CRA does not care about being that accurate then my system should satisfy them. When I phone CRA , I get 4 different answers from 4 different people. Many of my utilities are paid by my management company. So the electric bill is due on Mar23, they pay it. They send me an invoice a month later that is due two weeks after I receive it. So I mail them a cheque, this is already 2 months past the due date. Then the management company received the cheque. Is that the time the bill is considered paid ?? or it it when the cheque clears on my bank statement , the actual date I finally pay the bill with US dollars, or is it when I change my Canadian $ (definition of cash is Canadian dollars in Canada) to US dollars and wire it to my US bank. That could also be considered the day I actually pay my bill with Canadian dollars. Now this happens 6 months after the due date of the bill.

Rick Pennefather
6 years ago

I sold a rental property (duplex) in 2014 after 17 years of ownership. I have always calculated but never claimed CCA. Now that property has sold I want to claim the CCA. Which amounts do I use and where do I enter them? There is capital gain. Thanks, Rick

Patrick
6 years ago

Hi, there,

I have bought an investment property under joint name with my wife last year. When I complete the form T776, can I split half of the income and expenses to my wife by filling 50% of ownership?

Would appreciate anyone could give me advice.

Thanks,
Patrick.

Ed Rempel
6 years ago

Hi Naina,

Is your relative going to pay market rent for his/her apartment? If not, then you can probably claim 3/4 of your mortgage interest and other expenses (assuming the rent on the 4 apartments is similar).

Your other option is to have your relative pay a market rent. The you can claim the full expenses.

Land transfer tax is a capital cost, not a current expense. It is not deductible. It is part of your capital cost for calculating your capital gain on sale.

I hope that’s helpful.

Ed

naina
6 years ago

Me and my relative(co-owner) bought 4 plex in 2014 and my relative will move in one of those 4 apartment.
Q-Can I claim mortgage interest as an expenses? Does CRA allowed to do so? if so, will it be 100%
Q- We paid welcome tax. Can we claim as current expenses or capital expenditure?
Thanks for prompt answer

Dan @ Our Big Fat Wallet
7 years ago

@Craig I will assume you mean legal costs to evict….those costs can be claimed against the rental income for that year as long as they directly relate to the property and were paid by you

Craig
7 years ago

Can I claim “Rentalsman arbitration penalty costs associated with losing a new tenant due to the existing tenant’s inability to vacate rental property on time

Dan @ Our Big Fat Wallet
7 years ago

@Nancy without knowing specifics the CCA part would depend on the class originally used. I will assume the 33% is based on square footage. The capital gain would be on the selling price (which I’d assume is near FMV). You’re right, that is complicated, and hard to tell without specifics but you might want to double check the CCA as there could be a recapture

Nancy
7 years ago

Dan & Ed, thanks for your comments which were very helpful.

On the previous years tax returns 33% of the home was used for the basement apartment.

CRA states that your whole property can be considered your principal residence ( or not considered to have changed its use) if: a) rental use is relatively small in relation to use of principal residence; what constitutes relatively small? b) you do not make structural changes; None were done; and c) you do not deduct any CCA on that part of the property used for rental. CCA was claimed for new refrigerator purchased for apartment. Is this considered CCA on property? Hoping it will not be necessary to calculate capital gains on the rental portion for 2006 – 2010. Also when calculating capital gains on the actual sale of the house in 2013, is it necessary to use the T2091 IND form as well as Sch 3? Does FMV have be used in the ACB or just selling price? It’s seems complicated and a little overwhelming!

Lisa
7 years ago

Dan
Do you do both USA and Canadian rental property income tax? Or can you recommend anyone, do I need a tax lawyer?