Every landlord meets this question the first time a roof needs work. Deduct it now, or capitalize it and write it off slowly? The answer is not a matter of preference, and the difference is not trivial: a current expense reduces this year’s rental income in full, while a capital expense joins a capital cost allowance class and comes back a few percent at a time. The CRA has published the tests it applies, and they are more usable than most owners expect. The dividing line decides whether capital expenses on a rental property are recovered over years or deducted now as repairs, and the CRA reads that line narrowly.
Quick answer: A current expense restores a rental property to its original condition and is deducted in the year it is incurred. A capital expense provides a lasting benefit or improves the property beyond its original state, and is added to a capital cost allowance class instead, recovered over many years.
On this page
The five tests
The CRA sets out a series of questions. No single one is decisive; you work through them together.
| Question | Capital | Current |
|---|---|---|
| Lasting benefit? | Gives a lasting benefit or advantage — vinyl siding on a wooden house | Recurs after a short period — painting the exterior of a wooden house |
| Maintain or improve? | Improves the property beyond its original condition — replacing wooden steps with concrete | Restores the property to its original condition — repairing the wooden steps |
| Part, or separate asset? | A separate asset — buying a refrigerator for the rental | Replacing one part of the property — rewiring, provided it is not an improvement |
| Value of the expense? | Considerable in relation to the value of the property | Deferred maintenance done all at once is still maintenance |
| Repairs to used property just acquired? | Repairs to put newly acquired used property into suitable condition are capital | Ordinary maintenance of property you already held is current |
Two points are routinely misread. First, the value test is a tiebreaker, used only if the earlier questions have not settled it; a large bill for overdue maintenance is still a current expense. Second, an increase in the property’s market value because of an expense is not a major factor in deciding whether it is capital or current.
The two situational rules people forget
Both of these override the general analysis.
Repairs to used property you have just acquired. Making a tired duplex you just bought habitable is capital — even though the same work on a long-held property would be current. It puts the asset into suitable condition for use.
Repairs made to sell. Work done in anticipation of a sale, or as a condition of the sale, is treated as capital. If the repairs would have been done anyway and a sale happened to be negotiated during or after them, they remain current.
Why the classification matters
A current expense reduces rental income dollar for dollar in the year incurred, and can create a rental loss usable against other income. A capital expense is added to the capital cost of the building, enters the relevant capital cost allowance class and is deducted at a declining rate, and CCA on a rental property cannot create or increase a rental loss. In a loss year, capital treatment may give you nothing.
There is a tail too. Every dollar of CCA claimed reduces the undepreciated capital cost of the class, setting up recapture on sale. Capitalizing changes the arithmetic of the eventual disposition, as our guide to selling a rental property sets out.
Soft costs during construction or renovation
Interest, legal and accounting fees, insurance and property taxes during construction, renovation or alteration have their own rule. If they relate only to that work and period, they may be deducted currently, up to the rental income from the building; otherwise they go to the capital cost of the building, not the land. The construction period ends when the work is completed or 90% or more of the building is rented, whichever is earlier. CCA, landscaping and disability-related modifications are outside the soft cost rules.
Mixed jobs and record-keeping
Real invoices rarely fall neatly on one side. A contractor who repairs part of a roof and replaces the rest with better material has produced a mixed bill. Ask for a breakdown at the time; nobody can reconstruct it three years later. Keep quotes, before-and-after photos and a note of why the work was done, because the reason is what several tests turn on. File it all under the normal retention rules.
If you rent part of a home you live in, the personal portion never qualifies. Split shared costs by square metres or rooms, and claim 100% only of costs solely for the rented area. Read the change in use rules before claiming CCA on any part of a home.
The bottom line
Work the tests in order, do not let market value decide, watch the rules on newly acquired property and pre-sale repairs, and get mixed invoices split at source. Then classification stops being a yearly judgement call. A CPA who works with real estate investors can set one policy for a whole portfolio.
Whether any of this applies to you turns on your year-end, your structure and what else is in the picture — ask about your own situation and a CPA replies, usually the same business day. Free either way.
Whichever way a cost is classified, it lands on the return eventually — how rental income is reported covers the reporting side.
This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and your situation is unique, so please speak with a CPA before acting on anything here.
Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. About the firm → · Send an enquiry →
Working through this locally? We advise owners on it as an Abbotsford small business accountant.
Frequently asked questions about rental Property: Current vs Capital Expense
What is the difference between a current and a capital expense on a rental?+
Is a new roof a repair or an improvement?+
Does an expense count as capital if it increases the property value?+
I bought a rundown rental and fixed it up. Can I deduct that?+
Why does it matter if I have to capitalize it?+
What about interest and fees during a renovation?+
Own a rental property?
We’ll classify the year’s costs properly, set the CCA policy and keep the file audit-ready. Send an enquiry to a CPA.
Have a question about this?
Ask it free through the quick-question form and a CPA replies by email within one business day. For something that needs a proper look, a one-off Advice Call is a paid 45-minute session with a Chartered Professional Accountant: $225 plus GST, booked by email with a secure payment link. It is credited against your first invoice if you become a client within 60 days. Looking for an accountant to take this on rather than an answer? Send an enquiry.
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