Complete Rental Income Guide For Québec Landlords (T776 + Rl-31 Explained) — A Montreal Cpa Firm Near You Explains

Legal and Regulatory Framework
Landlords in Québec must report rental income accurately under both the Income Tax Act and the Taxation Act (Québec). This includes filing the federal T776 Statement of Real Estate Rentals and completing the RL-31 slip for Revenu Québec when required. Rental income includes amounts received from long-term tenants, Airbnb guests, subletters, roommates, and shared rental arrangements. Any income generated from the use of real property must be reported, whether earned through a corporation, partnership, or personally. Québec landlords must also follow GST/QST rules for short-term rentals, maintain proper documentation, record all expenses, allocate expenses correctly for plexes or shared-use properties, and comply with landlord-tenant regulations that intersect with tax responsibilities. Failure to report rental income accurately can result in reassessments, penalties, interest, and loss of deductions.

Key Court Decisions
Bédard v. RQ established that landlords must maintain complete and verifiable records of rental income and expenses. Inadequate documentation leads to denial of deductions. In Dussault v. Canada, the Tax Court ruled that expenses must be directly related to earning income. Personal-use expenses cannot be deducted. In Nguyen v. RQ, missing RL-31 slips triggered penalties because the landlord had a legal duty to provide tenants with a slip for solidarity credit calculation. In Taverner v. Canada, CRA denied capital cost allowance (CCA) because the taxpayer failed to document the acquisition cost allocation between land and building. In Hébert v. RQ, rental losses were denied when the taxpayer could not prove a reasonable expectation of profit. Courts consistently show that recordkeeping, classification, allocation, and accuracy determine the tax result.

Why CRA and Revenu Québec Audit Rental Income
Rental properties remain a high-audit-risk area because many landlords fail to report income properly, particularly when renting part of their home, operating short-term rentals, or owning plexes. CRA and RQ audit rental income because rental deductions reduce overall tax payable, and taxpayers frequently misclassify personal expenses as rental expenses. Authorities cross-match information using land registry databases, RL-31 filings, Hydro-Québec consumption patterns, Airbnb platform data, municipal occupancy permits, and banking deposits tied to rental payments. Failure to provide an RL-31 slip automatically triggers a risk flag for underreported rental income. GST/QST compliance is also a concern when Airbnb rentals exceed 30 days or when short-term rentals become commercial activity.

Mackisen Strategy
Mackisen CPA Montreal guides landlords through full compliance by reviewing tenancy structure, preparing T776 and RL-31 filings, allocating expenses properly, identifying deductible versus non-deductible expenses, applying CCA strategically, evaluating GST/QST obligations, and creating audit-proof documentation. We classify expenses as current or capital, review rental agreements, reconcile platform payout reports, analyze shared-use property allocations, prepare amortization schedules, and evaluate tax implications for plexes. We also design proper recordkeeping systems, including digital storage compliant with CRA’s 2024 digital audit standards. Our objective is to optimize deductions while preventing reassessments.

What Counts as Rental Income
Landlords must report all amounts received from tenants or guests, including monthly rent, overdue rent, deposits converted to rent, pet fees, cleaning fees for Airbnb guests, parking charges, laundry revenues, and utility recoveries charged to tenants. For Airbnb hosts, rental income includes nightly fees, cleaning charges, and platform bonuses. For shared-housing arrangements, contributions toward housing costs also count as rental income unless fully reimbursed. Sublet income must be reported if the tenant receives more than they pay to the landlord. Security deposits are not income unless permanently retained.

T776 — Federal Reporting Requirements
The T776 Statement of Real Estate Rentals is used to calculate rental income, deductible expenses, capital cost allowance, and net rental income. Expenses are deducted against gross rental revenues. Categories include advertising, insurance, interest, legal fees for rental matters, professional accounting fees, repairs and maintenance, property taxes, utilities, salaries or management fees, travel for rental purposes, condo fees, and landscaping or snow removal. T776 also distinguishes between current expenses and capital improvements. Current expenses can be deducted immediately. Capital improvements are added to the ACB and depreciated using CCA.

RL-31 — Québec Reporting Requirements
Landlords who rent a dwelling unit on December 31 must issue an RL-31 slip to tenants. The RL-31 provides information needed for the solidarity tax credit. Landlords must file the RL-31 with Revenu Québec and provide a copy to tenants by February 28. Penalties apply for non-filing or late filing. The RL-31 is required for every rental unit, including multiplexes, condos, basement apartments, and rooms that qualify as a rental dwelling. Exceptions include hotels, short-term rentals, rooming houses where meals are provided, and properties where the tenant is not considered a qualifying occupant. RL-31 errors lead to compliance flags and possible audits.

Deductible Expenses for Landlords
Landlords may deduct expenses that are reasonable, documented, and incurred to earn income. Deductible expenses include mortgage interest (not principal), property taxes, insurance, utilities paid by the landlord, repairs and maintenance, advertising, management fees, condo fees, bookkeeping, accounting, legal fees for rental disputes, bank fees for rental accounts, vehicle expenses for rental management, and landscaping. Repairs maintain the property in good working condition; improvements increase value and must be capitalized. Deductible repairs include patching, minor plumbing fixes, painting, and replacing small fixtures. Capital improvements include kitchen or bathroom renovations, major flooring replacement, window replacement, new roofing, HVAC installation, and structural changes.

CCA (Depreciation) for Rental Properties
CCA allows landlords to deduct the cost of the building (not land) over time. CCA reduces taxable rental income but triggers recapture when the property is sold. Recapture occurs when the sale price exceeds the undepreciated capital cost (UCC). Plex owners must allocate the property among units to determine CCA eligibility. Owners who live in one unit cannot claim CCA on their personal portion. Claiming CCA may reduce principal residence exemption eligibility for that portion at sale. Mackisen evaluates whether claiming CCA is beneficial or harmful based on client circumstances.

Allocating Expenses for Plexes
For duplexes, triplexes, and multi-unit buildings, landlords must allocate all expenses between personal and rental units. Allocation can be based on square footage, fair market rental value, or unit count. Common areas must be prorated. Only the rental portion is deductible. Misallocation is one of the main reasons CRA and RQ reassess plex owners. Mackisen prepares legally defensible allocation schedules to prevent disputes.

Short-Term Rentals (Airbnb)
Short-term rentals have additional tax rules. If rental periods are less than 30 days and include services such as cleaning, GST/QST may apply. Airbnb hosts must track all platform payouts and expense fees. Revenu Québec receives platform information through data-sharing programs, and non-compliance frequently results in audits. Airbnb income reported on T776 must also match RL-31 and GST/QST filings where applicable.

Tracking and Proving Rental Income
Landlords must maintain lease agreements, rent receipts, bank deposit records, platform payout statements, tenant communications, maintenance logs, repair invoices, utility records, and expense receipts. CRA now requires digital copies with metadata, meaning screenshots or altered PDFs may not suffice. Missing documentation results in denied deductions, reduced ACB, and reassessments.

Seller Considerations
When selling rental property or a plex, landlords must prepare for capital gains, recapture, GST/QST implications for substantially renovated buildings, and allocation of personal vs rental space. Rental records play a significant role in determining PRE eligibility. A missing RL-31 or inconsistent rental income reporting may invalidate PRE claims for rental units.

Real Client Experience
A Montréal duplex owner failed to allocate expenses correctly. CRA denied half his deductions. Mackisen reconstructed allocation schedules and reversed the reassessment. An Airbnb host underreported earnings due to missing platform payouts. CRA matched platform data and reassessed. Mackisen corrected filings and minimized penalties. A triplex owner failed to issue RL-31 slips. Revenu Québec issued fines. Mackisen provided guidance and updated filings. A landlord who claimed CCA unknowingly reduced PRE eligibility. Mackisen restructured reporting to reduce future tax exposure.

Common Questions
Do I need an RL-31 if tenants move out before year-end? Only if a tenant occupied the unit on December 31.
Can I claim mortgage principal? No, only interest is deductible.
Is Airbnb income rental or business income? Depends on services provided.
Are repairs always deductible? Only if they do not improve the property beyond original condition.
Should I claim CCA? It depends on future sale plans.
Does failing to file an RL-31 trigger audits? Often yes.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures landlords comply with all rental income tax requirements. We prepare T776 and RL-31 filings, optimize deductions, handle GST/QST for short-term rentals, protect against reassessments, and build audit-ready documentation for plexes, Airbnb hosts, and long-term rental property owners.