Reporting Rental Income and Expense

Introduction
Understanding reporting rental income and expenses is essential for landlords, real estate investors, Airbnb operators, and anyone earning income from property in Canada. Rental income is one of the most common sources of taxable income—but also one of the most frequently audited by CRA and Revenu Québec. Incorrect reporting, missing receipts, or improper deductions can lead to reassessments, penalties and denied expenses. Whether you own one rental unit or a portfolio of properties, this guide will teach you everything you need to know about reporting rental income and expenses accurately and legally.

Legal and Regulatory Framework
Reporting rental income and expenses is governed by:

• the Income Tax Act
• the Québec Taxation Act
• CRA’s Form T776 – Statement of Real Estate Rentals
• Québec’s Form TP-80
• GST/HST and QST regulations for short-term rentals
• CRA and ARQ audit guidelines

Landlords must report rental income from:

• residential real estate
• commercial rental units
• Airbnb or short-term rentals
• mixed-use properties
• multi-unit buildings
• foreign rental properties

Correctly reporting rental income and expenses ensures compliance and audit protection.

1. What Counts as Rental Income?

Rental income includes:

• monthly rent
• parking fees
• laundry income
• storage rental income
• utilities paid by tenants
• Airbnb or short-term rental income
• pet fees
• late-payment fees
• lease cancellation fees
• taxable incentives (if applicable)

ALL of these must be included when reporting rental income and expenses.

Airbnb/Short-Term Rentals
Short-term rentals under 30 days are considered commercial activity for GST/HST and QST purposes. Special rules apply.

2. What Rental Expenses Are Deductible?

CRA and ARQ allow landlords to deduct reasonable expenses incurred to earn rental income.

Common deductible expenses include:

• mortgage interest
• property taxes
• home insurance
• condo fees
• utilities (if paid by landlord)
• repairs and maintenance
• advertising costs
• cleaning services
• property management fees
• bank charges
• legal and accounting fees
• travel expenses to manage property (partial)
• office expenses
• landscaping and snow removal
• small tools and supplies

These are core elements of reporting rental income and expenses.

Capital Expenses vs Current Expenses

Current expenses = deductible immediately
Examples: cleaning, minor repairs, repainting, small fixes

Capital expenses = added to the building and depreciated (CCA)
Examples: new roof, major renovations, structural improvements

Misclassifying these is one of the top audit triggers.

3. Claiming Capital Cost Allowance (CCA)

CCA is depreciation on rental buildings or equipment.

Key rules:

• You cannot use CCA to create or increase a rental loss
• Residential buildings use Class 1 (4%)
• Furniture/appliances use Class 8 (20%)
• Airbnb equipment may fall under Class 10 or Class 12
• CCA recapture applies when you sell the property

CCA is optional, but important in reporting rental income and expenses.

4. Airbnb & Short-Term Rental Tax Rules

Short-term rentals are considered commercial activity, meaning:

• GST/HST applies after $30,000 in revenue
• QST applies in Québec regardless of GST rules
• ITCs/ITRs can be claimed
• CCA rules differ
• Cleaning & turnover costs increase deductibility

Airbnb operators must report all income through T776 and TP-80.

5. Mixed-Use Properties (Personal + Rental Use)

Properties used for both personal and rental purposes must be allocated:

Example:
• You live in 50% of the home
• Rent 50% of the home
= only 50% of expenses are deductible

Personal-use portions cannot be deducted.

This is a major issue in reporting rental income and expenses.

6. Rental Losses

Rental losses occur when expenses exceed rental income.

Losses are deductible only if the property is operated with a:

Reasonable expectation of profit (REOP).

CRA denies losses for:

• hobby rentals
• properties not marketed for rent
• excessive personal use
• unreasonable expenses

You must prove real business intent.

7. Recordkeeping Requirements

Landlords must keep:

• leases
• receipts for all expenses
• proof of payment
• mortgage statements
• property tax bills
• condo statements
• renovation receipts
• realtor contracts
• travel logs
• Airbnb or booking reports
• GST/QST invoices

Keep records for six years, or longer for capital property.

Key Court Decisions

Courts consistently rule:

• CCA cannot increase rental losses
• cosmetic improvements may be considered capital
• undocumented expenses are denied
• Airbnb income must be reported even if paid in cash
• personal-use vs rental-use must be clearly separated
• REOP requires real intention to earn profit

Québec courts often take an even stricter approach.

Why CRA and Revenu Québec Audit Rental Properties

Rental real estate is one of the most audited sectors because:

• high expenses lead to losses
• undocumented repairs are common
• capital vs current expense misclassification
• Airbnb operators often forget GST/QST
• rental income is underreported
• mixed-use properties create confusion
• principal residence rules often misapplied

Spotting errors early prevents heavy reassessments.

Mackisen Strategy

Mackisen CPA offers complete support for reporting rental income and expenses:

• preparing T776 and TP-80 accurately
• allocating mixed-use expenses
• separating capital vs current repairs
• optimizing CCA without triggering recapture
• reviewing Airbnb and GST/QST obligations
• preparing audit-proof rental statements
• handling CRA and ARQ rental audits
• reconstructing missing receipts
• ensuring profit realism (REOP compliance)

We protect landlords from costly tax mistakes.

Real Client Experience

Examples of how Mackisen helped landlords:

• A condo landlord lost receipts for renovations. CRA denied expenses. Mackisen reconstructed evidence and recovered most deductions.
• A Québec Airbnb host failed to charge QST. ARQ demanded retroactive payments. We corrected filings and negotiated a payment plan.
• A duplex owner misallocated expenses between personal and rental portions. We recalculated allocations and avoided reassessment.
• A real estate investor used CCA incorrectly. CRA attempted recapture. Mackisen corrected returns and minimized tax impact.
• A landlord forgot to report rental income for two years. We filed voluntary disclosures and avoided penalties.

These cases show why expert support matters.

Common Questions

• Is mortgage principal deductible?
No—only interest.

• Can I deduct renovations?
Only if classified correctly (current vs capital).

• Do I need to report Airbnb income?
Yes—100%.

• Can rental losses reduce employment income?
Yes—if REOP is demonstrated.

• Do I need to register for GST/HST?
Only for short-term rentals or commercial rentals.

• Does Québec require TP-80?
Yes—every year.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps landlords and real estate investors stay compliant while maximizing legitimate deductions. Whether you're reporting rental income and expenses, managing multi-unit buildings, or navigating Airbnb rules, our expert team provides full tax preparation, compliance, audit defense and strategic planning to protect your investment.