Canada · Taxes

How to track rental income for Canadian taxes

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In Canada you report rental income and expenses on CRA Form T776, Statement of Real Estate Rentals, filed with your T1 return. You report rent on an accrual basis, deduct eligible operating expenses (but never mortgage principal), and your net rental income is taxed at your marginal rate. Good year-round records are what make this painless.

How do you report rental income in Canada?

Rental income is reported on Form T776, which attaches to your personal T1 return and calculates your net rental income or loss for the calendar year. If you co-own the property, each owner reports their share. Report rent on an accrual basis — in the year it was earned, not the year you were paid. If a tenant owes December rent but pays in January, it is still December's income.

What counts as rental income?

All rent you earn between January 1 and December 31, plus related amounts: payments in the form of goods or services, certain lease-cancellation payments, and portions of some tenant deposits you keep. Report the gross figure — you deduct expenses separately.

What expenses can you deduct?

You can deduct the reasonable operating costs of earning rental income, including:

Mortgage interest (but not the principal portion of your payment).
Property taxes and insurance.
Repairs and maintenance (current expenses — not improvements, which are capital).
Property management and advertising for tenants.
Utilities and condo fees you pay.
Professional fees (accounting, some legal).

You cannot deduct the value of your own labour, land transfer / welcome tax (it is added to the property's cost base instead), or the principal part of mortgage payments.

Worked example

Suppose your triplex earns $54,000 of rent in the year. You paid $22,000 of mortgage interest, $9,000 property tax, $2,400 insurance, $4,500 repairs, and $2,700 management — $40,600 of deductible expenses. Your net rental income is $54,000 − $40,600 = $13,400, which is added to your other income and taxed at your marginal rate. (Note the mortgage principal you also paid that year is not deductible — it builds equity, not an expense.)

A caution on capital cost allowance (CCA)

CCA lets you deduct depreciation on the building (most rental buildings are Class 1 at 4% per year, with a half-year rule in year one). Two important limits: CCA cannot create or increase a rental loss, and claiming CCA on your building can trigger recapture and reduce the principal-residence-style relief on some properties, increasing tax when you sell. Many investors deliberately skip building CCA for this reason. Talk to an accountant before claiming it.

How to keep records all year

Log every rent payment as it is earned, with the date and unit.
Keep every receipt and categorize expenses to the T776 lines as you go, not in April.
Separate current expenses (repairs) from capital ones (improvements) — they are treated very differently.
Reconcile against your bank so nothing is missed; connected-bank tools do this automatically.
Keep records for at least six years, as the CRA requires.

This is exactly what RETracker automates: it syncs your accounts, tags rent and expenses, and gives you a clean year-end picture to hand your accountant or drop onto Form T776.

Frequently asked questions

What form do I use to report rental income in Canada?

Form T776, Statement of Real Estate Rentals, filed with your T1 personal tax return. It nets your rental income against deductible expenses for the year.

Can I deduct my mortgage payment?

Only the interest portion. The principal portion is not deductible — it reduces your loan and builds equity. Property tax, insurance, repairs, management and utilities you pay are deductible.

Do I report rent when it is earned or when it is paid?

When it is earned — the accrual basis. December rent paid in January is December income.

Should I claim CCA (depreciation) on my rental?

It depends. CCA can lower this year's tax but cannot create a loss, and it can increase tax on sale through recapture. Many investors skip building CCA. Ask an accountant for your situation.

Is the welcome tax (land transfer tax) deductible?

No. Land transfer / welcome tax is a cost of acquiring the property and is added to its capital cost base, not deducted as a current expense.

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