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Tax on Rental Income in Canada
If you're a Canadian resident who owns a rental property personally, your net rental income is added to your employment and other income and taxed at your combined federal and provincial marginal tax rate. You pay income tax only on your net rental income, not on the total rent you collect. Net rental income is gross rent minus eligible expenses such as mortgage interest, property taxes, insurance, utilities, and repairs.
Rental Income Tax Calculator
How Is Rental Income Taxed in Canada?
How your rental income is taxed depends on how you own the property: on your own, with a partner, or through a corporation.
Sole Proprietorship
If you own a rental property on your own, your net rental income is added to your personal income and taxed at your marginal tax rate. If your rental income pushes your total income into a higher bracket, part of it is taxed at the lower rate and part at the higher rate.
For example, if your employment income is $40,000 and your net rental income is $20,000, your total income is $60,000. Your federal tax on that $20,000 of rental income in 2026 would be:
- 14% of $18,523 = $2,593.22
- 20.5% of $1,477 = $302.79
- Total federal tax on rental income: $2,896.01
This example assumes your basic personal amount and other tax credits are already applied against your $40,000 of employment income, so they don't reduce the tax on your rental income.
You also pay provincial or territorial tax on your net rental income, calculated using your province's own brackets and rates.
You need to complete Form T776 (Statement of Real Estate Rentals) when filing your personal income tax return. Your taxable rental income (net rental income) is your gross rental income minus the expenses for operating the rental property. You can learn more about deductible expenses on the CRA's website.
Partnership or Co-Ownership
If you own a rental property with one or more people, you're either co-owners or partners. Owning a rental property with someone else doesn't automatically make it a partnership. Co-owners become a partnership only if they carry on a business together to make a profit, with or without a written agreement. Co-owning a rental property as an investment doesn't create a partnership, so most people who jointly own a rental property, such as spouses, are co-owners rather than partners.
Partnership
Rental income for partnerships is still taxed as personal income, but each partner pays tax only on their share of the income, based on their share of the partnership. The property's net rental income is calculated, and the partnership claims capital cost allowance before that income is split, so individual partners can't claim it separately on the partnership's property. Each partner then reports their share of that income on their personal tax return. Each partner's share is taxed at that partner's own marginal tax rate.
For example, Partner A and Partner B each own 50% of a partnership that earns $40,000 in net rental income. Partner A has $40,000 of employment income (assuming they don't have any other taxable income), and Partner B has $100,000. Using 2026 federal tax brackets, and assuming each partner's basic personal amount and other tax credits are already used against their employment income:
Partner A's federal tax on their $20,000 share:
- 14% of $18,523 = $2,593.22
- 20.5% of $1,477 = $302.79
- Total: $2,896.01
Partner B's federal tax on their $20,000 share:
- 20.5% of $17,045 = $3,494.23
- 26% of $2,955 = $768.30
- Total: $4,262.53
Partner B pays $1,366.52 more in federal tax on the same $20,000 because their higher employment income puts their rental income in higher tax brackets. These examples exclude provincial tax and Quebec's federal abatement.
Co-Ownership
Similar to partners, co-owners also report their own share of rental income and expenses on their personal tax return, using Form T776. The co-owners are taxed at their own marginal tax rate. Co-owners can each decide how much capital cost allowance to claim on their share of the property.
Owning a Rental Property with Your Spouse or Family
Splitting rental income between spouses or family members can lower your household's total tax when one person earns less than the other. Each person shall report the share of rental income that matches their actual share of the property, which generally depends on how much each person contributed to buying it. If you give or lend money to your spouse, common-law partner, or a related child under 18 to buy their share, you may have to report the rental income on your own tax return due to attribution rules.
Corporations
Rental income for properties owned by corporations will be taxed at the corporation's income tax rate. For most Canadian-controlled private corporations (CCPCs), rental income is passive investment income and doesn't qualify for the small business deduction. Rental income in a CCPC qualifies for the small business deduction if the corporation employs more than five full-time employees in the rental business throughout the year.
The table below compares the rental income taxation for sole proprietors, partnerships, and corporations.
| Sole Proprietorship | Partnership or Co-Ownership | Corporation (CCPC) | |
|---|---|---|---|
| How rental income is taxed | Your marginal personal tax rate | Each partner or co-owner's marginal personal tax rate | Corporate rate on investment income |
| Where it's reported | Your T1 return (Form T776) | Each partner's or co-owner's T1 return | Corporation's T2 return |
Rental Income vs Business Income
Rental income can become business income if you provide extra services to your tenants, such as cleaning, security, or meals. Basic services, such as heat, light, parking, and laundry facilities, keep it as rental income. Short-term rentals, such as Airbnb, aren't automatically business income. The CRA looks at the overall level of services you provide, so the more your rental operates like a hotel, with services such as daily housekeeping, meals, or concierge help, the more likely your income is business income. Business income is reported on Form T2125 instead of Form T776 and is subject to CPP contributions.
What Counts as Rental Income?
Rental income includes all amounts you receive from the tenants for the use of your property, which can include:
- Regular and advance rent payments
- Lease cancellation fee or early termination fee
- Additional fees for parking spaces or storage units
- Security deposits you retain to cover unpaid rent or damages (security deposit you return or intend to return to the tenant isn't counted as rental income)
- Late fees
- Fees paid for services such as cleaning, laundry, etc.
How to Save Tax on Rental Income?
The most common way to save tax on rental income is deducting eligible expenses from your rental income. Eligible expenses are the reasonable expenses incurred to earn rental income.
Deductible expenses may include:
- Interest: on a mortgage or loan used to buy or improve the rental property (the principal portion of your payments isn't deductible)
- Property taxes
- Insurance premiums: for the current year's coverage on the rental property
- Repairs and maintenance: current expenses only, such as cleaning, pest control, and minor repairs
- Utilities: only if you pay them, not your tenants
- Condominium fees
- Property management fees: including fees paid to an agent to find tenants
- Advertising: listing fees and signs to find tenants
- Professional fees: legal fees to prepare leases or collect overdue rent, and accounting and bookkeeping fees
- Office expenses: small items such as pens, stationery and stamps
- Salaries and wages: paid to someone who maintains or manages the property
Expenses for short-term rentals that don't comply with provincial or municipal rules, such as registration, licensing, or permit requirements, can't be deducted to the extent attributable to non-compliant days.
Capital Cost Allowance (CCA) on Rental Property
Capital cost allowance (CCA) lets you deduct the cost of your rental building and other capital purchases related to it over several years. You can claim CCA on:
- The building: Most rental buildings bought after 1987 are Class 1, with a CCA rate of 4% per year on a declining balance.
- Furniture and appliances: Items such as a fridge, stove, or furniture you provide to tenants are Class 8, with a CCA rate of 20% per year.
You can't claim CCA on land, so when you buy a rental property, you need to divide the purchase price between the land and the building. You may claim CCA only on the building's share of the total price. You also cannot claim CCA to create or increase a total rental loss.
When you sell the property, if the building's share of the selling price is more than its remaining undepreciated cost, you have to add the difference back to your income, up to the total CCA you claimed. This is called CCA recapture. Because the building's share of the selling price is often higher than its remaining undepreciated cost, landlords who claim CCA may face recapture when they sell. You can calculate your claim using WOWA's capital cost allowance calculator.
Non-Resident Landlords
If you are a non-resident of Canada for tax purposes who earn rent from a Canadian property, your tenant or property manager must withhold 25% of your gross rent and send it to the CRA (Canada Revenue Agency). If you don't file a Canadian tax return for that income, the 25% withholding is retained as your final tax.
As a non-resident landlord, you can file a Section 216 return, which lets you pay tax on your net rental income after expenses, usually lowering your tax. The Section 216 return is due within two years after the end of the year in which you received the rent.
You can also file Form NR6 so your agent withholds 25% of your estimated net rental income instead of your gross rent. If the CRA approves your NR6, you must file your Section 216 return by June 30 of the following year, or the withholding goes back to 25% of your gross rent.
FAQs
How much tax do you pay on rental income in Canada?
Net rental income is taxed at the same combined federal and provincial marginal rate as your employment income, with no special rate for rental income. How much you pay depends on your total income, since rental income is added to your other income. Use the rental income tax calculator above to estimate your tax.
Can I deduct a rental loss from my other income?
Yes. If your rental expenses are more than your rental income, you can generally deduct the loss from your other income, such as employment income. However, you must be renting your property to earn a profit, meaning if you incur a loss from renting the property to a family member at below-market rent, the loss can't be claimed.
Do I pay tax if I rent out a room in my home?
Yes. Rent from a room or basement unit in your home is rental income and must be reported. You can deduct the share of expenses that relates to the rented space, such as a portion of utilities and property taxes.
What taxes do I pay when I sell a rental property?
You pay tax on the capital gain, which is the selling price minus the property's cost and selling expenses, and half of the capital gain is taxable. If you claimed capital cost allowance, you may also have to add CCA recapture to your income, which is fully taxable.
Is rental income taxed differently in each province?
Yes. Each province and territory sets its own income tax brackets and rates, so your provincial tax on the same rental income depends on where you live. In Quebec, you file a separate provincial return and report rental income on form TP-128-V.
How is rental income taxed in Ontario?
In Ontario, your net rental income is taxed at your Ontario personal income tax rate, in addition to federal tax. Because rental income adds to your taxable income, it can also increase your Ontario surtax and Ontario Health Premium. If a Canadian-controlled private corporation owns your rental property, its rental income is taxed at a combined federal and Ontario rate of 50.17%, and 30.67% of investment income, subject to limits, is refundable when the corporation pays taxable dividends.
What are the rental income tax rules in British Columbia?
Your net rental income is taxed at your B.C. personal income tax rate, in addition to federal tax. Properties in designated areas that aren't a principal residence may be subject to the Speculation and Vacancy Tax, though renting to long-term tenants can qualify you for an exemption. In many B.C. communities, short-term rentals are limited to the host's principal residence plus one secondary suite or accessory dwelling unit on the same property, and all short-term rental hosts must register with the provincial registry.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA® does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.