CRA Rental Income Deductions: What You Can and Cannot Claim

The Basic Rule

The CRA allows you to deduct expenses that are reasonable and incurred for the purpose of earning rental income. The expense must have a direct connection to your rental activity. Personal expenses, even if they involve the same property, are not deductible.

What You Can Claim

Mortgage Interest

You can claim the interest portion of your mortgage on the rental property. If you refinanced and used some of the funds for personal purposes, only the interest attributable to the rental portion qualifies. Keep your mortgage statements showing the annual interest paid.

Property Taxes

The full amount of municipal property taxes on a rental property is deductible. For mixed-use properties (part personal, part rental), calculate the rental percentage based on square footage or number of rooms used for rental purposes.

Insurance

Landlord insurance premiums are deductible, including property insurance, liability coverage, and riders for specific risks like sewer backup or flood. Tenant insurance purchased by the tenant is their expense, not yours.

Repairs and Maintenance

Any expense that restores the property to its previous condition without enhancing it qualifies as a current expense. This includes fixing leaks, replacing broken fixtures, repainting, patching drywall, and routine servicing of systems like furnaces or water heaters.

Utilities Paid by the Landlord

Electricity, gas, water, internet, and cable television that you pay for the rental property are deductible. Track these separately from your personal utility bills.

Advertising Costs

Online listing fees, printed advertisements, "For Rent" signage, and professional photography or videography for listings are all deductible.

Professional and Legal Fees

Fees paid to accountants, lawyers, and property managers for services related to the rental are deductible. This includes tax preparation fees, legal costs for drafting leases, eviction proceedings, and property management commissions.

Office Supplies and Expenses

Paper, envelopes, printer supplies, postage, and similar items used for rental management qualify. If you use a dedicated home office for managing rentals, a proportional share of home expenses (heat, electricity, internet) may also be deductible.

Vehicle Expenses

Fuel, insurance, maintenance, and depreciation for a vehicle used to travel to rental properties for management purposes. You must maintain a detailed logbook showing the date, destination, purpose, and kilometers for each rental-related trip.

Software and Subscriptions

Property management software, accounting tools, and cloud storage subscriptions used for rental management qualify as deductible expenses.

Tenant Screening Costs

Credit check fees, background screening services, and reference verification costs are deductible expenses incurred to find qualified tenants.

Bad Debts

If a tenant owes rent that you have been unable to collect and you have taken reasonable steps to collect it, you can claim the amount as a bad debt deduction. You must have previously included the amount in your rental income.

Condo Fees

Monthly condominium maintenance fees for a rental condo unit are deductible. Any special assessments may be current or capital depending on the nature of the work funded.

What You Cannot Claim

Mortgage Principal Payments

The principal portion of your mortgage payment is not deductible. Only the interest qualifies. Your annual mortgage statement separates principal and interest for you.

The Purchase Price of the Property

The cost of acquiring the property is not a current expense. It forms part of your adjusted cost base and is relevant only when you calculate capital gains upon sale. Land transfer taxes and legal fees on purchase are added to the cost base.

Value of Your Own Labour

If you personally paint the unit, fix a faucet, or do landscaping, you cannot deduct the value of your time. You can deduct materials you purchased, but not your labour.

Personal-Use Portion of Expenses

If you live in part of the property and rent out another part, you can only deduct the rental portion of shared expenses. You cannot claim 100% of the property taxes on a duplex where you occupy one of the two units.

Fines and Penalties

Fines for bylaw violations, late tax payment penalties, or other penalties imposed by government authorities are not deductible.

Clothing and Personal Items

Work clothes, personal tools, and personal expenses are not deductible even if you use them while doing rental maintenance.

Land Costs

You cannot claim CCA (depreciation) on the land portion of your property. Only the building and its components are depreciable. When you purchase a property, you need to allocate the price between land and building for CCA purposes.

The Grey Areas

Repairs vs. Improvements

This is the most common area of confusion. The CRA distinguishes between a repair (maintaining current condition) and an improvement (enhancing beyond previous condition). Replacing a broken window with an equivalent window is a repair. Replacing all windows with energy-efficient upgrades is an improvement. Repairs are fully deductible. Improvements are capitalized and depreciated.

Prepaid Expenses

If you prepay insurance or other expenses that cover a future period, you can only deduct the portion that applies to the current tax year. The remainder is deducted in the year it applies to.

Start-Up Costs

Expenses incurred before you start earning rental income (such as renovation costs to prepare a unit for its first tenant) are generally capital expenses, not current deductions.

Record-Keeping Best Practices

• Keep all receipts for at least six years from the end of the tax year
• Use a separate bank account for rental transactions
• Organize receipts by expense category matching the T776 form lines
• Take photos of receipts that might fade over time
• Maintain a vehicle logbook throughout the year, not just at tax time

For a line-by-line walkthrough of the form where you report these deductions, read our guide to completing CRA Form T776.

Key Takeaways

• Deductible expenses must be reasonable and directly related to earning rental income
• Mortgage interest, property taxes, insurance, and repairs are the most common deductions
• You cannot deduct mortgage principal, personal labour, or the purchase price of the property
• The repair vs. improvement distinction is critical for correct reporting
• Keep detailed records for at least six years to support your claims