How to Handle Tax Deductions from Your Canadian Rental Property
Did you know that many of the expenses you incur as a landlord in order to profit from your rental property are tax deductible? To help you understand which ones are tax deductible and help you benefit as much as possible when it comes time to file, we put together the ultimate guide.
Before we get to the specifics, however, it’s useful to start with a quick breakdown of the different categories of tax deductible expenses.
Current vs Capital expenses: why it's important to know the difference:
Tax deductible expenses typically fall into two categories:
- Current expenses: These are recurring costs of owning a property. For example, the cost of repaving a driveway.
- Capital expenses: These are expenses that have a lasting result. For example, purchasing a rental property.
It’s important to understand which of your expenses belong to which category because this distinction affects how they can be deducted.
For example, current expenses can be deducted from your gross income under the year they were incurred (i.e. expenses incurred paving your driveway in 2023 can be deducted from your 2023 income).
Capital expenses, on the other hand, typically can’t be entirely deducted in the same taxation year that the expense was incurred (i.e. the cost of a rental property bought in 2023 can’t be deducted fully from your 2023 income).
For help with determining which expense belongs to which category, the CRA recommends asking these questions.
Did you know using Rhenti is tax deductible? Rhenti's tools help you find tenants fast, easily manage multiple renter conversations, and screen detailed renter applications so you can choose the right renter and rest easy.
A list of tax deductions for your rental property
At a glance, you can deduct the following expenses on one or more rental properties:
- Advertising
- Insurance
- Interest and bank charges
- Office expenses
- Professional fees (includes legal and accounting fees)
- Management and administration fees
- Repairs and maintenance
- Salaries, wages, and benefits (including employer's contributions)
- Property taxes
- Travel
- Utilities
- Motor vehicle expenses
- Other rental expenses (landscaping costs, lease cancellation payments, condominium fees, vacant land)
- Prepaid expenses
Advertising:
The great news is using Rhenti to help you find the right-fit renter can be written off as well. Rhenti's rental listing marketing features lists your property on all of the top internet and social listing sites such as Kijiji, View it, Zillow, Hotpads, Facebook, and Google. Also, if you paid someone a referral fee for helping you find a tenant, or you ran any sort of advertisements for your property, those can be claimed as a current expense.
Insurance:
Insurance coverage for the applicable tax year can be claimed as a current expense.
Interest and bank charges:
Interest on the money you’ve borrowed to acquire a rental property can be tax deductible, but there are limitations on what you can claim.
Office expenses:
Smaller items like pens and pencils can be deducted as a current expense.
Professional fees:
Lawyer and accountant fees are tax deductible, but the way you claim them depends on the circumstance. For example, if you hire a lawyer to evict a tenant or an accountant to do your bookkeeping, that can be deducted from your gross rental income for that year. You can’t, however, claim legal fees from purchasing your rental unit from your gross rental income. These expenses can be divided between your land and the property itself and will be considered part of the cost of the property when calculating capital gains or losses.
Management and administrative fees:
You can deduct the amounts paid to a person or a company to manage your property as well as amounts paid or payable to agents for collecting rent or finding new tenants. If you paid a commission to a real estate agent when selling your rental property, include them as outlays and expenses on Schedule 3, Capital Gains (or Losses), when you report the disposition of your property.
Repairs and maintenance:
Materials and hired labour for repairs to the rental property are considered current expenses, but repair work you personally carry out is not tax deductible. Major renovations to improve the value of your property cannot be claimed as a current expense, but can be claimed under capital costs. The exception to this is if you do renovations to the home to accommodate a tenant who has a disability – this can be claimed as a current expense. Read our complete guide on landlord maintenance obligations.
Wages, salaries, and benefits:
The wages, salaries, and benefits you pay to people you’ve hired to maintain your rental property are deductible, but your own labour is not.
Property taxes:
Property taxes during the time your place was available for rent are tax deductible.
Travel:
Travel expenses you incur as a result of managing your property are deductible.
Utilities:
If your rental agreement states that you pay for a rental unit’s utilities, this is considered a tax-deductible expense.
Motor vehicle expenses:
A motor vehicle you use to transport yourself or tools in order to maintain a property can be claimed. Collecting rent from only one property is considered a personal expense and does not make your vehicle tax deductible. If however, you are managing two or more of your rental properties, doing repairs and/or collecting rent, and supervising repairs, then your vehicle does qualify as a tax-deductible expense.
Other expenses:
Other expenses include:
- Landscaping costs: Landscaping costs related to the year you incurred the expense.
- Condo fees: Condo fees related to your current upkeep, repair, and maintenance of the unit and common areas.
- Lease cancellation payments: Money you paid to tenants to cancel their lease.
- Vacant land: Vacant land can be rented out and the operating expenses related to renting it out can be deductible, but there are limitations.
Prepaid expenses:
Expenses you paid in advance, for example, insurance, can be deducted but must be applied only to the tax year for which they are applicable. For example, if you paid for five years’ worth of insurance, you should prorate the cost over a five-year period to determine the correct amount to claim for the current tax year.
For more information on each of these deductible expenses, reference the CRA’s descriptions.
The following are not deductible rental expenses:
Equally as important, here are the expenses you can’t deduct:
- Land transfer taxes
- Mortgage principal
- Penalties
- Value of your own labour
- Personal portion of expenses
Land transfer taxes:
Land transfer taxes are not tax deductible and should be considered part of the cost of the property.
Mortgage principal:
Repayments on borrowed money you used to buy the rental property cannot be claimed.
Penalties:
Penalty costs related to notices of assessment or reassessment.
Value of your own labour:
The value of the work you do to maintain your property cannot be claimed as an expense.
Personal portion of expenses:
If you rent out portions of the property you live in, the parts you occupy are not tax deductible.
For more information on each of these non-deductible expenses, reference the CRA’s descriptions.
Don't forget - using Rhenti is tax deductible. Rhenti's tools help you find tenants fast and choose the right one.
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The blog posts on this website are for the purpose of general introductory information. They can’t serve as an opinion or professional advice. Speak to a professional before making decisions related to your circumstances.
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