Tax on Rental Income in Canada
WOWA Trusted and Transparent Rental Income Tax Calculator for 2023
Partnerships
Sole Proprietorship
If you are operating your rental property as a sole proprietorship, your rental income is taxed as personal income at your personal tax rate. You will need to complete Form T776 (Statement of Real Estate Rentals) when filing your personal tax return.
Your taxable rental income is your rental income subtracted by expenses for operating your rental property. To learn more about deductible expenses, visit CRA’s website.
This calculator estimates the tax on your rental income by using your highest personal income tax bracket. For example, if we were to look at just the federal personal income tax brackets for 2021, the first $49,020 of income is taxed at 15%, while income between $49,020 and $98,040 is taxed at 20.50%.
If your employment income is $40,000 and you have rental income of $20,000, then your rental income tax is:
Your rental income tax would be $3,603.90 on rental income of $20,000.
Partnerships
Rental income for partnerships is still taxed as personal income, but operating your rental property as a partnership means that you will be sharing your profits and losses with your partner(s). The above calculator asks for your percentage of the partnership, which will change the rental income that is added to your own personal income. You would then add your portion of the property’s income to your personal tax return.
For example, let’s consider a joint partnership with Partner A owning 50% and Partner B owning 50%. The partnership’s rental income is $40,000, Partner A’s employment income is $40,000, and Partner B’s employment income is $100,000.
For personal income, the first $49,020 of income is taxed at 15%, while income between $49,020 and $98,040 is taxed at 20.50%, and $98,040 to $151,978 is taxed at 26% federally.
Partner A’s share of the partnership’s rental income is 50%, which is $20,000. The tax on their rental income can be calculated as:
Partner B’s personal income is higher. This puts Partner B in a higher personal income tax bracket. Partner B’s rental income tax would be:
Even though both partners received the same amount of rental income from the partnership, Partner B will pay more tax on the rental income that they received since their personal employment income puts them into a higher marginal tax bracket.
Corporations
Rental properties owned by corporations will have their rental income taxed at their corporate income tax rate. If your corporation has an annual income of less than $500,000 and taxable capital of $15 million or less, your rental income may qualify for the small business deduction. This will reduce your corporate income tax rate both federally and provincially. For corporations in Saskatchewan, your annual income must be less than $600,000.
Tax Rate on Rental Income
| Sole Proprietorship | Partnership | Corporation | |
|---|---|---|---|
| Tax Rate | Taxed at your marginal personal income tax rate | Taxed at your marginal personal income tax rate | Taxed as corporate income (active business income) |
Tax on Rental Income in Ontario
Ontario's corporate income tax rate is 11.5%. This means that if you are a corporation, Ontario’s rental income tax rate is 11.5%. If you qualify for the small business deduction, your Ontario rental income tax rate is 3.2%. If you are operating as a sole proprietorship or partnership, visit our Ontario personal income tax calculator to find your personal tax bracket. Each province has their own tax brackets and tax rates.
Other Income
If you are a resident of Canada for tax purposes please include your employment and other income from all sources. If you are a non-resident of Canada for tax purposes include your employment and other income only from Canadian sources.
How to Save Tax on Rental Income
You can save tax on rental income by deducting eligible expenses from your rental income.
Deductible expenses include:
- Advertising
- Insurance Premiums
- Interest Charges
- Office Expenses
- Professional Fees
- Repairs and Maintenance
- Salaries
- Property Taxes
- Utilities
If you are currently operating your rental property as a sole proprietorship or partnership, you could save tax on your rental income by running your property as a corporation instead. Depending on your employment income, your personal tax rate could be higher than corporate tax rates. However, incorporating may come with additional expenses, such as accounting and reporting requirements.