Earning Rental Income: The Tax Basics – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Whether you own a condo, duplex, basement suite, Airbnb unit, commercial property, or multiple residential rentals, the moment you begin earning rent in Canada you must report it to CRA. Rental income is fully taxable, and CRA carefully monitors real estate activity through land registries, T-slip matching, municipal records, Airbnb and platform data, and GST/HST systems. Many first-time landlords do not understand what expenses they can deduct, how to complete Form T776, or how rental income interacts with mortgage interest, repairs, and capital cost allowance (CCA). This guide explains the essential tax rules every landlord needs to know.

Legal and Regulatory Framework

Rental income is governed by the Income Tax Act and must be reported on Form T776 (Statement of Real Estate Rentals). Rental income includes rent received, subsidies, parking fees, laundry income, and short-term rental revenue. Allowable expenses include mortgage interest, property taxes, condo fees, repairs, utilities, insurance, advertising, management fees, professional fees, and reasonable home office costs when applicable. Capital improvements must be capitalized, not expensed. GST/HST does not apply to long-term residential rentals, but short-term rentals under 30 days may require GST/HST registration. CRA requires landlords to maintain proper receipts, invoices, and documentation for all claims.

Key Court Decisions

In Youngman v. Canada, the court determined that rental income must be reported based on actual receipts regardless of personal use. In Begy v. Canada, CRA denied rental losses due to insufficient documentation; the court supported CRA’s position, reinforcing the need for proper records. In Cassidy v. Canada, capital improvements were incorrectly expensed; the court required capitalization and allowed CRA’s reassessment. In Bruneau v. Québec, improper allocation between personal and rental use was corrected by the court, reducing allowable expenses. These rulings show that detailed documentation and correct categorization are essential for landlords.

Why Rental Income Creates CRA Attention

CRA closely monitors rental activity because many taxpayers underreport rent or incorrectly deduct expenses. Red flags include large rental losses, incomplete documentation, properties used partly for personal purposes, excessive repairs, improperly claimed CCA, or short-term rentals without GST/HST compliance. CRA also cross-checks rental income with municipal property transfers, land registry data, mortgage statements, and Airbnb/VRBO platform reports, increasing audit risk for landlords who do not report fully.

How Rental Income Works for Tax Purposes

Rental income is generally calculated as gross rent minus allowable expenses. A rental profit increases taxable income, while a rental loss may reduce other income if the rental is operated with a reasonable expectation of profit. Long-term residential rentals are exempt from GST/HST, but short-term rentals (under 30 days) are taxable once revenue exceeds $30,000. Capital Cost Allowance (CCA) can be claimed to reduce taxable rental income, but claiming CCA may reduce or eliminate the principal residence exemption on sale.

Deductible Rental Expenses

1. Mortgage Interest

Only the interest portion—not the principal—is deductible.

2. Property Taxes and Insurance

Fully deductible if the property is 100% rental.

3. Maintenance and Repairs

Minor repairs are deductible; major improvements must be capitalized.

4. Condo Fees

Deductible if they relate to the rental portion.

5. Utilities

Deductible when the landlord pays them.

6. Advertising, Management, and Professional Fees

Fees for tenant placement, accounting, and legal services are deductible.

7. Travel Expenses

Allowed only for travel directly related to managing the rental property.

Non-Deductible or Limited Items

Capital improvements must be capitalized. Land is not depreciable. Personal-use portions must be excluded. Mortgage principal, large renovations intended to increase property value, and cosmetic improvements designed to enhance resale cannot be expensed. CRA disallows estimates—receipts are required.

Short-Term Rentals (Airbnb, VRBO)

Short-term rentals under 30 days with services similar to hotels may require GST/HST registration at $30,000 of revenue. Expenses must be allocated between personal and rental use. Municipal regulations may require permits or tax remittances. CRA considers many Airbnb hosts as operating a business rather than a simple rental.

Mackisen Strategy

At Mackisen CPA Montreal, we help landlords build strong rental tax structures by categorizing expenses correctly, allocating personal and rental portions, preparing Form T776, managing GST/HST for short-term rentals, analyzing whether CCA should be claimed, reconstructing missing documentation, and defending rental deductions during CRA audits. Our strategies maximize deductions while maintaining full compliance.

Real Client Experience

A Montreal landlord with missing renovation receipts faced CRA denial of major expenses; we reconstructed documentation and restored most deductions. A condo owner incorrectly claimed capital improvements as repairs; we corrected filings and avoided penalties. An Airbnb host unaware of GST/HST obligations exceeded $30,000 in revenue; we registered them properly and corrected past filings. A duplex owner improperly allocated personal space; we recalculated expenses and protected deductions in audit.

Common Questions

Do I need receipts for all expenses? Yes—CRA can deny expenses without documentation. Is CCA worth claiming? Sometimes, but it may affect tax on sale. Is Airbnb rental income taxable? Always. Do I need to report rental income even if it just covers expenses? Yes—gross rent must always be reported.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps landlords navigate rental income taxation with confidence. Whether you own one property or a full portfolio, we ensure accurate filings, optimized deductions, and strong audit protection.