Rental income tax returns
A rental property is straightforward to report and easy to report wrongly. Two decisions do most of the damage: what counts as a repair, and whether to claim depreciation at all.
Quick answer: Rental income and expenses are reported on form T776 inside your T1. The two decisions that matter most are whether a cost is a current repair or a capital improvement, and whether to claim capital cost allowance — because claiming it now creates a recapture on sale later.
What is included
- The T776 rental statement per property, inside your T1.
- Current against capital decided on each cost, with the reasoning recorded.
- The CCA decision made deliberately, not by default.
- Co-ownership split correctly where the property is held with someone else.
- Interest deductibility checked, which turns on what the borrowed money was used for.
- Change-in-use consequences flagged before they happen rather than after.
Repair or improvement
A cost that restores the property to its previous condition is generally a current expense and deductible now. A cost that improves it beyond that, or is part of acquiring it, is capital and is written off over time instead. Replacing a broken window is one; replacing all the windows with better ones is usually the other.
Getting this wrong in either direction costs money. Treating capital as current invites a reassessment; treating current as capital defers a deduction you were entitled to take immediately.
The CCA trap, and change in use
Claiming capital cost allowance on a rental building reduces tax now and creates recapture when the property sells, which is taxed as ordinary income rather than as a capital gain. For a property expected to appreciate, claiming it is often the wrong trade. Current against capital and selling a rental property cover both ends.
Moving into a rental, or renting out a home, is a deemed disposition at market value — tax owing with no cash received. Change in use rules covers the elections that defer it.
Who this is for, and who it is not
A good fit: an owner of one or more rental properties, held alone or jointly, including someone who has just started renting out a property they used to live in.
Not a fit: a short-term rental run as a business with services attached, which is closer to business income than rental income and is reported differently. In either case we say so on the first call rather than quoting for work you do not need.
Common questions about rental returns
We own it jointly. Who reports it?+
Is the mortgage payment deductible?+
Should we claim CCA?+
We rent a room in our own home. Is that different?+
Talk to a CPA about this
One Chartered Professional Accountant, start to finish. Fixed fees, quoted in writing before any work begins, and no obligation from a first conversation.
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