Rental income

Rental expenses you can deduct – Rental income

You can deduct any reasonable expenses you incur to earn rental income. The two basic types of expenses are current expenses and capital expenses.

For more information on what we consider a current or capital expense, go to Current expenses or capital expenses.

Some expenses you incur are not deductible. For more information, go to Rental expenses you cannot deduct.

If you are modifying a building to accommodate persons with disabilities, buying an older building, or encounter other situations, go to Capital expenses – Special situations.

The following is a list of expenses that are deductible:

• Prepaid expenses
• Line 8521 – Advertising
• Line 8690 – Insurance
• Line 8710 – Interest and bank charges
• Line 8810 – Office expenses
• Line 8860 – Professional fees (includes legal and accounting fees)
• Line 8871 – Management and administration fees
• Line 8960 – Repairs and maintenance
• Line 9060 – Salaries, wages, and benefits (including employer's contributions)
• Line 9180 – Property taxes
• Line 9200 – Travel
• Line 9220 – Utilities
• Line 9281 – Motor vehicle expenses
• Line 9270 – Other rental expenses

Prepaid expenses

A prepaid expense is an expense you paid for ahead of time. Under the accrual method of accounting, claim the expense you prepay in the year or years in which you get the related benefit.

Under the cash method of accounting, you cannot deduct a prepaid expense amount (other than for inventory) relating to a tax year that is two or more years after the year the expense is paid. However, you can deduct the part of an amount you paid in a previous year for benefits received in the current tax year. These amounts are deductible as long as you have not previously deducted them.

Line 8521 – Advertising

You can deduct expenses for advertising, including advertising in Canadian newspapers and on Canadian television and radio stations. You can also include any amount you paid as a finder's fee.

Line 8690 – Insurance

You can deduct the premiums you pay on your rental property for the current year. If your policy gives coverage for more than one year, deduct only the premiums related to the current year.

Deduct the remaining premiums in the year(s) to which they relate.

Line 8710 – Interest and bank charges

You can deduct the interest charge on money you borrow to buy or improve your rental property. If you have interest expenses that relate to the construction or renovation period, go to Construction soft costs.

You can also deduct interest charges you paid to tenants on rental deposits. If you are claiming interest as a rental expense on Form T776, do not include it as a carrying charge on Form 5000-D1, Federal Worksheet (for all except non-residents).

Do not deduct in full for the year any lump-sum amounts paid for interest or a fee paid to reduce the interest rate on a mortgage. You prorate these amounts for the rest of the original term of the mortgage or loan. You also prorate a penalty or bonus paid to a financial institution to pay off your mortgage loan before it is due.

For example, if the term of your loan or mortgage is five years, and in the third year you pay a fee to reduce your interest rate, treat this fee as a prepaid expense and deduct it over the remaining term of the loan or mortgage.

Loan fees

You can deduct certain fees when you get a mortgage or loan to buy or improve your rental property. If the loans relate to the construction or renovation period, first read about soft costs.

Loan fees include:

• mortgage applications, appraisals, processing, and insurance fees
• mortgage guarantee fees
• mortgage brokerage and finder's fees
• legal fees related to mortgage financing

You deduct these fees over a period of 5 years, regardless of the term of your loan. Deduct 20% (100% divided by the 5 years equals 20%) in the current tax year and 20% in each of the next 4 years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.

If you repay the loan before the end of the 5-year period, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.

If you incur standby charges, guarantee fees, service fees, or any other similar fees, you may be able to deduct them in full in the year you incur them. For more information, see Interpretation Bulletin IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate and Expenses of Borrowing Money.

You can choose to treat finance fees you paid and the interest on money you borrowed to acquire depreciable property as capital expenses.

If you refinance your rental property to get money for a business or other investments, you may be able to claim the interest expenses on Form 5000-D1, Federal Worksheet (for all except non-residents). Go to Line 22100 – Carrying charges and interest expenses, and other expenses or the "Expenses" chapter in Guide T4002, Self employed Business, Professional, Commission, Farming, and Fishing Income.

If the funds are for personal use, you cannot deduct the interest expenses.

Line 8810 – Office expenses

You can deduct the cost of office expenses. These include small items such as pens, pencils, paper clips, stationery and stamps. Office expenses do not include capital expenditures to acquire capital property such as calculators, filing cabinets, chairs and a desk. These are capital items.

Line 8860 – Professional fees (includes legal and accounting fees)

You can deduct fees for legal services to prepare leases or collect overdue rents.

If you incur legal fees to buy your rental property, you cannot deduct them from your gross rental income. Instead, divide the fees between land and building and add them to their respective cost.

You can also deduct expenses you had for bookkeeping services, audits of your records and preparing financial statements. You may be able to deduct fees and expenses for advice and help to prepare your income tax and any related information returns.

Line 8871 – Management and administration fees

You can deduct the amounts paid to a person or a company to manage your property.

You can also deduct amounts paid or payable to agents for collecting rents or finding new tenants.

If you paid commissions 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.

Line 8960 – Repairs and maintenance

You can deduct the cost of labour and materials for any minor repairs or maintenance done to property you use to earn income. You cannot deduct the value of your own labour.

You cannot deduct costs you incur for repairs that are capital in nature. However, you can claim capital cost allowance.

Line 9060 – Salaries, wages, and benefits (including employer's contributions)

You can deduct amounts paid or payable to superintendents, maintenance personnel and others you employ to take care of your rental property. You cannot deduct the value of your own services.

As the employer, you must deduct your part of the following contributions:

• Canada Pension Plan (CPP)
• Quebec Pension Plan (QPP)
• Employment insurance premiums

You can also deduct workers' compensation amounts payable on employees' remuneration and Provincial Parental Insurance Plan (PPIP) premiums. The PPIP is an income replacement plan for residents of Quebec. For details, contact Revenu Québec.

For more information on making payroll deductions, go to Payroll.

You can also deduct any insurance premiums you pay for an employee for a sickness, an accident, a disability or an income insurance plan.

For more information on wages, go to Guide T4001, Employers' Guide – Payroll Deductions and Remittances.

Line 9180 – Property taxes

You can deduct property taxes you incurred for your rental property for the period it was available for rent. For example, you can deduct property taxes for the land and building where your rental property is situated. For more information, go to Vacant land and Construction soft costs.

Line 9200 – Travel

You can deduct travel expenses you incur to collect rents, supervise repairs and manage your properties.

Travel expenses include the cost of getting to your rental property but do not include board and lodging, which we consider to be personal expenses.

To claim the travel expenses you incur, you need to meet the same requirements discussed in Motor vehicle expenses.

Line 9220 – Utilities

You can deduct expenses for utilities, such as gas, oil, electricity, water and cable, if your rental arrangement specifies that you pay for the utilities of your rental space or units.

Line 9281 – Motor vehicle expenses

When can you deduct motor vehicle expenses?

You can deduct motor vehicle expenses in the following circumstances:

• If you own one rental property – You can deduct reasonable motor vehicle expenses if you meet all of the following conditions:
  
  • you receive income from only one rental property that is in the general area where you live
  • you personally do part, or all, of the necessary repairs and maintenance on the property
  • you have motor vehicle expenses to transport tools and materials to the rental property

You cannot deduct motor vehicle expenses you incur to collect rents. These are personal expenses.

• If you own two or more rental properties – In addition to the expenses listed above, you can deduct reasonable motor vehicle expenses you incur to do any of the following:
  
  • collect rents
  • supervise repairs
  • manage the properties

This applies whether your rental properties are located in or outside the general area where you live. Your rental properties have to be located in at least two different sites, away from your principal residence. The motor vehicle expenses that we consider to be reasonable depend on the circumstances of your situation.

You can deduct motor vehicle expenses only when they are reasonable and you have receipts. You also have to keep records of the kilometres you drove for your rental properties and the total kilometres you drove in the year. You must also determine the total expenses paid for the vehicle in the year.

For more information, visit Keeping records.

What type of vehicle do you own or lease?

Go to Type of vehicle you own or lease before calculating your deductible expenses.

Joint ownership

If you and another person own or lease a passenger vehicle or zero-emission passenger vehicle, the limits on capital cost allowance, interest and leasing costs still apply. The total amount the you (as a joint owner) or any other owners deduct cannot be more than the amount one person owning or leasing the vehicle could deduct.

Business use of a motor vehicle or passenger vehicle (including zero-emission vehicles and zero-emission passenger vehicles)

If you use a motor vehicle or passenger vehicle for business and personal use, you can deduct only the part of the expenses you paid to earn income. However, you can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your motor vehicle or passenger vehicle. To support the amount you can deduct, keep a record of both the total kilometres you drove and the kilometres you drove to earn income.

If you use more than one motor vehicle or passenger vehicle for your business, for each vehicle keep a separate record that shows the total personal-use kilometres and business kilometres you drive, as well as the cost to run and maintain each vehicle. Calculate each vehicle's expenses separately.

For information on how to calculate the motor vehicle expenses that you can deduct, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income.

Deductible expenses

The types of expenses you can deduct include:

• fuel and oil cost
• maintenance and repairs
• insurance
• licence and registration fees
• eligible interest on money borrowed to buy a motor vehicle
• eligible leasing costs

Interest expense

In the calculation of your motor vehicle expenses, you can deduct the interest on money you borrowed to buy a motor vehicle, a zero-emission vehicle, passenger vehicle, or a zero-emission passenger vehicle you use to earn rental income.

However, there is a limit on the amount of interest you can deduct when you use a passenger vehicle or zero-emission passenger vehicle to earn rental income. The amount of interest you can deduct is limited to the lesser of the following two amounts:

• Total interest payable for the year
• $10 × the number of days for which interest was payable in the year (use $8.33 for passenger vehicles bought between December 31, 1996, and January 1, 2001)

Leasing costs for a passenger vehicle (or a vehicle that would qualify as a zero-emission passenger vehicle if you owned it)

You can deduct amounts you paid to lease a motor vehicle or a zero-emission vehicle you used to earn rental income. Include the leasing costs you paid when you calculate your allowable motor vehicle expenses.

If you use a passenger vehicle or a zero-emission passenger vehicle to earn rental income, there is a limit on the amount of the leasing costs you can deduct. For more information, go to Chart to calculate eligible leasing costs for passenger vehicles.

If the lease agreement for your passenger vehicle includes items such as insurance, maintenance and taxes, include them as part of the lease charges on line 1 when you complete the applicable chart.

Repayments and imputed interest

When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If so, you cannot use the leasing chart. Instead, contact us.

Imputed interest is interest that would be owing to you if interest were paid on the money you deposited to lease a passenger vehicle. Calculate imputed interest for leasing costs on a passenger vehicle only if all of the following apply:

• one or more deposits were made for the leased passenger vehicle
• one or more deposits are refundable
• the total of the deposits are more than $1,000

Line 9270 – Other expenses

Enter on this line the total of other expenses you incurred to earn income, as long as you did not include them on a previous line.

Landscaping costs

You can deduct the cost of landscaping the grounds around your rental property only in the year you paid the cost, even if you use the accrual method for calculating your rental income.

Lease cancellation payments

You can deduct amounts paid or payable to tenants to cancel their leases.

Deductible amount

The amount of the lease cancellation payment you can deduct depends on if you made the payment in the year or a previous year.

If you made the cancellation payment in the year:

Cancellation payment × Number of days to the end of the year when payment is made ÷ Number of days left on the lease

If you made the cancellation payment in a previous year:

Cancellation payment × Number of days in the year left on the lease ÷ Number of days left on the lease

For this calculation, the life of the lease (including all renewal periods) cannot be longer than 40 years.

Condominium fees

If you earn rental income from a condominium unit, you can deduct the expenses that you would usually deduct from it.

You can also deduct condominium fees that represent your share of the upkeep, repairs, maintenance and other current expenses of the common property. For more information, see Interpretation Bulletin IT-304, Condominiums.

Vacant land

You might earn rental income from vacant land. You can deduct your operating expenses from this income. There are limits on how much you can deduct for both:

• interest on money you borrowed to acquire the land, or on an amount payable for the land
• property taxes on the land assessed by a province or territory and a Canadian municipality, including assessments for school taxes and local improvements

The amount you can deduct for these two expenses is limited to the amount of rental income left after you have deducted all other expenses. You cannot create or increase a rental loss, or reduce other sources of income, by claiming a deduction for interest or property taxes. They can be added to the cost of the land. This will decrease your capital gain or increase your capital loss when you dispose of the land.

You cannot deduct your mortgage interest and property taxes for vacant land if you are not earning any income from that land. You cannot add these expenses to the adjusted cost base of your land. In addition, you cannot deduct income taxes, profit taxes or land transfer taxes you have for the vacant land.

For more information on vacant land, see Interpretation Bulletin IT-153, Land Developers – Subdivision and Development Costs and Carrying Charges on Land, and Interpretation Bulletin IT-456, Capital Property – Some Adjustments to Cost Base, and its Special Release.

Forms and publications

• Guide T4036, Rental Income
• Form T776, Statement of Real Estate Rentals
• Interpretation Bulletin IT-417, Prepaid Expenses and Deferred Charges
• Form T2125, Statement of Business or Professional Activities
• Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income

Related link

• GST/HST rebate for employees and partners