Rental Property Tax Guide (Canada): What Expenses Can You Actually Deduct?

Confused about what you can deduct on rental income in Canada? Learn the difference between current vs capital expenses, top deductible landlord costs on Form T776, CCA basics, renting part of your home, and new short-term rental deduction restrictions—plus 10 FAQs.

Quick Overview (Read This First)

If you earn rental income in Canada, the CRA lets you deduct reasonable expenses—but the biggest mistake landlords make is mixing up:

• Current expenses (generally deductible right away), vs.

• Capital expenses (generally added to the property/asset and claimed over time through CCA)

At AMH, the question we hear most—especially from real estate investors in the Iranian-Canadian community across the GTA—is:
“Can I deduct this renovation?”

The honest answer is: it depends on how the CRA classifies it. This guide breaks down what to claim, what to avoid, and how to stay audit-proof when you file your T776 rental statement. Canada

1) Current vs. Capital Expenses: The Rule That Controls Everything

The CRA’s core idea is simple:

Current expenses (generally “repair/maintenance”)

These are recurring or routine costs that maintain the property or restore it to its original condition. Canada
Typical examples:

• fixing a leaky faucet

• repairing a broken window

• patching drywall and repainting

• minor plumbing or electrical repairs that restore function

Tax treatment: Usually deducted in full in the year you pay them (when they relate to earning rental income). Canada

Capital expenses (generally “improvements/upgrades”)

These are costs that provide a lasting benefit or improve the property beyond its original condition (or extend its useful life). Canada
Typical examples:

• replacing an entire roof

• adding a deck or structural addition

• upgrading to a new high-end HVAC system

• buying appliances (separate assets)

Tax treatment: Not deducted all at once; usually claimed over time through Capital Cost Allowance (CCA). Canada+1

The “soft cost” trap (big audit flag)

The CRA highlights a common situation: if you buy a used property and do repairs to put it in suitable condition for use, those repairs can be treated as capital even if similar repairs would normally be current expenses. Canada
This often comes up when investors buy a property “as-is,” renovate, then rent.

2) The Most Common Deductible Rental Expenses (T776)

On Form T776, the CRA lists many deductible expense categories landlords use to calculate net rental income. Canada
Here are the most common ones—and what to watch for:

Mortgage interest (but not principal)

You can generally deduct interest and bank charges related to earning rental income. Canada
But the principal portion of your mortgage payment is not deductible. Canada

Property taxes

Property taxes for the rental period are commonly deductible. Canada

Insurance (current-year portion)

Insurance premiums for the current year are deductible—but if you prepaid a multi-year policy, you can only deduct the portion that applies to the current year. Canada+1

Utilities (if you pay them)

If your lease agreement makes you responsible for heat, hydro, water, etc., those amounts typically fall under deductible utilities. Canada

Repairs and maintenance (current expenses)

Routine repairs that restore the property (not upgrades) are typically deductible. Canada+1

Professional fees (accounting + legal)

Legal fees to prepare leases or collect overdue rent, and accounting fees for tax prep/bookkeeping, are in CRA’s deductible categories. Canada
(Real talk: clean bookkeeping is often the difference between “confident filing” and “stress filing.”)

Advertising / finding tenants

Tenant-finding costs (including certain ads and finder’s fees) are listed as deductible. Canada

Management & administration fees

Property management fees and admin costs are commonly deductible categories. Canada

Travel, motor vehicle (when directly related)

CRA includes travel and motor vehicle expenses as deductible categories on T776, but these are areas where good documentation matters. Canada

3) Expenses Landlords Often Try to Deduct (But CRA Says No)

Some costs are commonly misunderstood.

• Mortgage principal is not deductible. Canada

• Land transfer taxes paid when buying are not deductible as a rental expense (they’re generally added to the property’s cost). Canada

• The value of your own labour (your own time fixing/painting) is not deductible. Canada

• Penalties on a notice of assessment/reassessment are not deductible. Canada

This is why “DIY renovations” can be tricky: materials may be claimable (depending on current vs capital), but you can’t claim your own labour. Canada

4) Capital Expenses and CCA: How Depreciation Really Works

When something is capital, you generally don’t expense it immediately—you claim it over time through CCA. Canada+1

Key points landlords should know:

• You don’t have to claim the maximum CCA—you can claim any amount from zero up to the maximum. Canada

• CRA rules include the half-year rule in many purchase years (limits first-year CCA on additions). Canada

• CCA can affect future years and may result in recapture when you sell (planning matters). Canada

AMH tip: Many landlords benefit from treating CCA as a strategy tool, not an automatic checkbox. Sometimes claiming CCA today can create a bigger tax bill later—so it should be a deliberate decision.

5) Renting Out Part of Your Home: Basement Suites and Room Rentals

If you rent only part of the home you live in, you generally can’t claim 100% of household expenses. The CRA’s guidance is to allocate expenses between personal and rental use—using square metres or number of rooms, and even time-based sharing for common areas. Canada

A simple example CRA provides:

• Deduct 100% of expenses that relate only to the rented area (e.g., repairs in that unit)

• Deduct a percentage of shared costs like taxes/insurance based on the rented portion Canada

Also, CRA notes you can’t claim expenses for renting part of your property if there’s no reasonable expectation of profit. Canada+1

6) Important Update: Short-Term Rentals and “Non-Compliant” Deductions

If you operate a short-term rental (generally under 90 consecutive days), CRA explains that for tax years after 2023, deductions can be denied for the non-compliant amount if the short-term rental is prohibited at that location or doesn’t meet required municipal/provincial registration, licensing, or permit rules. Canada

CRA also describes a 2024 transition relief where becoming fully compliant by December 31, 2024 could deem the rental compliant for all of 2024 (for that year only). Canada

Bottom line: If you’re doing Airbnb/short-term stays, compliance isn’t just legal—it can directly affect whether you can deduct expenses.

7) How to Stay “Audit-Proof” as a Landlord

Maximizing deductions is great—but only if you can support them.

A simple landlord documentation system:

• Keep leases, rent receipts, and a rent ledger

• Store invoices/receipts (digital is fine if clear)

• For renovations: keep scope of work + before/after photos and contractor breakdowns

• Track allocation method if you rent part of your home (rooms/square footage/time)

• Maintain a clean separation of personal vs rental costs

This makes it easier to classify current vs capital properly and defend your claim if CRA asks.

FAQ: 10 Common Questions About Rental Deductions in Canada

1) Can I deduct renovations on my rental property?

Sometimes. It depends whether CRA views it as a current expense (repair/maintenance) or a capital expense (improvement/upgrade). Canada

2) What’s the simplest way to tell current vs capital?

Ask: does it provide a lasting benefit or improve the property beyond its original condition? If yes, it’s usually capital. Canada

3) Can I deduct mortgage payments?

You can generally deduct the interest portion, but not the principal portion. Canada+1

4) If I pay insurance for 2–3 years upfront, can I deduct it all now?

No—generally only the part that applies to the current year is deductible. Canada+1

5) I bought a fixer-upper and repaired it before the first tenant. Is that current or capital?

Often, those “get it ready to rent” repairs can be treated as capital when they’re required to put a used property into suitable condition for use. Canada

6) If I rent out my basement, can I deduct all my property taxes and utilities?

No—you generally allocate expenses based on the rental portion (rooms/square metres, and sometimes time-based shared space). Canada

7) Can I claim my own labour for repairs?

No. CRA says you can’t deduct the value of your own services or labour. Canada

8) Do I have to claim CCA on my rental property?

No. CRA notes you can claim any amount from zero up to the maximum allowed. Canada

9) What happens if my short-term rental isn’t properly licensed or allowed?

CRA explains deductions can be denied for the non-compliant amount for tax years after 2023 if you’re not compliant with applicable local rules. Canada

10) What’s the best way to avoid mistakes on the T776?

Keep clean records, classify expenses correctly (current vs capital), and do a quick review with a CPA—especially if you had major renovations, partial home rental, or short-term rental activity. Canada

Final Note (AMH – GTA Focus)

At AMH Chartered Professional Accountant, we help GTA businesses simplify corporate tax obligations, reduce risks, and take advantage of every tax-saving opportunity available.
📞 Call: 416-900-6079
📧 Email: info@amhtaxes.com
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