Rental income tax returns in BC
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: what rental income tax allows
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.
What goes on the T776, and what to keep
Rental income is reported on Form T776, Statement of Real Estate Rentals, inside your T1. One form is filed per owner, per property, and each co-owner reports only their share.
| Section | What we need from you |
|---|---|
| Property details | Address, number of units, your ownership percentage, and the names of any co-owners |
| Gross rents | Rent received for the year, by unit, and any other income from the property |
| Expenses | Mortgage interest (not principal), property tax, insurance, repairs, utilities you pay, management and advertising |
| Personal-use share | The part of the property you or your family use, which comes out of every expense |
| Capital cost allowance | The building’s cost, less land, and any additions or improvements with dates |
Two choices on the T776 have consequences years later. CCA is optional, and on a rental it cannot create or increase a loss; claimed, it lowers tax now but is recaptured as income when the property sells for more than its depreciated cost. And a suite in your own home raises the principal residence question: whether part of the gain on sale stays taxable, and whether an election preserves the exemption.
A T1 with a rental schedule starts from the $100 base return; the T776 and any change-in-use election are quoted with it in writing before work begins. Tax is due April 30 with the rest of your return.
Records a rental return depends on
- The mortgage statement that splits interest from principal — only the interest is deductible.
- Invoices for work on the property, described well enough to show whether it was a repair (deductible now) or an improvement (added to the cost and claimed through CCA).
- The purchase documents, including the split between land and building, because only the building is depreciable.
- A co-ownership agreement or record, where more than one person owns the property, showing each owner’s share of income and expenses.
- Lease agreements and rent records by unit and month.
Keep them for six years from the end of the tax year they relate to — and the purchase and improvement records for as long as you own the property, because they set the gain when it is sold.
Renting to family, and selling a rental
Renting to a relative below market rent is usually treated as a cost-sharing arrangement rather than a business: the rent is not reported as income, but a rental loss cannot be claimed either. Charge market rent and it is a rental like any other.
When a rental is sold, two things happen on the return. Any CCA claimed over the years is recaptured as income, to the extent the sale price exceeds the depreciated cost; and the gain above the original cost is a capital gain. Both are worked out from the purchase and improvement records, which is why those are kept for as long as you own the property.
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?+
The forms and the dates
Rental income and expenses go on form T776, one per property, with co-owners each reporting their share. Repairs are deducted in the year; improvements are added to the building’s cost and depreciated as class 1 capital cost allowance if claimed at all — and claiming it can create recapture on sale. A change in use between a residence and a rental is a deemed disposition unless an election under subsection 45(2) or 45(3) is filed with that year’s return.
Who this is for in the Fraser Valley
Rental returns here are Abbotsford and Chilliwack basement suites, Langley and Surrey townhouses held by a couple, and the occasional Mission or Maple Ridge acreage with a rented house on it. The recurring questions are the same: which expenses are current and which are capital, whether to claim capital cost allowance on the building, and what happens when a rented property becomes a home or a home becomes rented.
What it costs. A T1 with a rental schedule starts from the $100 base return; the T776 and any change-in-use election are quoted with it. Every published fee →
Other personal tax work
The rest of what this covers, and the page each one is on.
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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