In 2025, Canada’s rental property owners are seeing new tax rules that affect how they report their rental earnings. The Canada Revenue Agency (CRA) is making sure that all landlords, from people renting out a single room to those managing many homes, follow stricter tax laws. This move aims to stop tax mistakes and ensure all income is reported correctly.
With more Canadians using rental properties as a source of money, the CRA has been increasing audits, especially for short-term rentals like Airbnb. In 2024, audits went up by 9%, and this number may grow. The government is now focusing on making sure landlords follow not only federal tax rules but also local licensing laws. If these aren’t followed, landlords could lose the right to claim deductions.
New policies also affect how landlords can plan their taxes, especially when using RRSPs, capital cost allowance (CCA), and loan interest deductions. One major point for 2025 is how income is labeled—as simple rental income or business income. This decision affects which forms to file and how much tax may be owed.
Understanding Income Type: Rental or Business?
Landlords must first figure out how their income is classified. If they offer only basic services (like heat, electricity, or parking), their earnings are usually seen as rental income. This must be reported using Form T776.
But if the landlord provides extra services—like daily cleaning, meals, or on-site security—the CRA may count it as business income. In this case, Form T2125 is needed. The type and level of services offered decide how the income should be reported.
Using the Calendar Year for Tax Reporting
Rental income in Canada must be reported for the full calendar year, from January 1 to December 31. This is different from businesses, which can choose a different fiscal year.
If a property was only rented for part of the year, landlords should report only the income and expenses for that rental period. For example, if it was rented from June to December, only those months count on the tax return.
Renting Out a Room in Your Home
Many homeowners rent out a room or a basement suite for extra income. But there are special tax rules. If the space is rented to a family member at a very low rate with no profit, the income does not need to be reported. However, if the family member pays full market rent, the income must be included.
Also, if a landlord claims CCA for the rented space, they might lose the Principal Residence Exemption (PRE) when selling the home. This could mean more taxes later.
What Landlords Can and Cannot Deduct
Landlords can deduct many costs to lower the amount of tax they pay. Some common deductions include:
- Property taxes – If the property is used for rental, this is allowed.
- Mortgage interest – Only the interest portion, not the full payment.
- Repairs and maintenance – Simple fixes are deductible.
- Insurance premiums – These must match the rental period.
Repairs vs. Upgrades: What’s the Difference?
Repairs are small fixes that return something to its original state, like fixing a leak or changing a broken handle. These can be deducted right away.
Capital improvements, like installing new windows or building a deck, add value and must be claimed over time. These costs are not fully deductible in the year they happen.
If unsure whether something is a repair or an improvement, it’s a good idea to speak with a tax expert.
Claiming Depreciation: Capital Cost Allowance (CCA)
Landlords can claim CCA to write off the value of their property or items like furniture and appliances. But there are limits:
- CCA cannot be used to make a rental loss.
- CCA can reduce rental income to zero but not below.
- Claiming CCA on a personal home may remove the PRE.
Travel Costs: When They Count
Travel expenses can only be deducted in some situations. If you own more than one property and need to travel between them for repairs or checks, those travel costs may be deducted.
But if you only have one rental property, travel to and from that location usually cannot be claimed.
Rules for Short-Term Rentals (Like Airbnb)
Short-term rental rules became stricter in 2024 and continue in 2025. If landlords do not have proper local licenses, they are not allowed to deduct expenses or claim CCA. This means they must report full income without any deductions, leading to higher taxes.
Deducting Loan Interest: Be Careful
Interest on loans used to buy or improve rental properties is usually deductible. But the CRA checks how the loan was used. If the money was spent on personal costs, the interest cannot be claimed.
Some landlords may choose to add loan interest to the property’s adjusted cost base, which might help reduce taxes when selling.
Shared Property and Non-Resident Owners
If a rental property is owned with a spouse or another person, it matters whether the setup is a partnership or simple co-ownership, as this affects how income is divided and taxed.
If a co-owner is a non-resident, landlords may need to:
- File an Underused Housing Tax (UHT) return, and
- Pay 25% tax on the gross rent, unless they choose to report net income under Section 216 of the Income Tax Act.
Selling a Property Within 12 Months
If a landlord sells a property within one year of buying it, the CRA may treat the profit as business income, which is taxed at a higher rate. In this case, the seller cannot claim the Principal Residence Exemption.
There are some exceptions, such as relocation, death, or divorce—but these must be supported with clear proof.