Many Canadians earn money by renting out properties. This could be anything from a single basement apartment to multiple rental units. Because this type of income is growing, the Canada Revenue Agency (CRA) is now taking a closer look at how landlords report their rental earnings.
In 2025, the CRA introduced several new rules to make sure rental income is correctly reported and taxed. They want landlords to follow both federal tax laws and local city rules. These changes also focus on short-term rentals and how income is classified—whether it’s just rent or part of a business.
To help landlords avoid penalties or overpaying on taxes, it’s important to understand how to file rental income properly, what expenses can be deducted, and how new CRA guidelines apply. This article will break down everything in simple language so landlords can stay informed and follow the new 2025 rules.
How to Identify the Type of Rental Income
Landlords must know if their rental income is regular rental income or business income. This depends on the services provided. If you just rent out space with basic things like heat, water, and parking, it counts as rental income. Use Form T776 to report this.
If you provide extras like cleaning, meals, or daily help, the CRA may count it as business income. That means you’ll need to file it using Form T2125, which is used for business reporting.
Reporting Income by the Calendar Year
Rental income must be reported from January 1 to December 31—this is called the calendar year. Even if you only rent your property for part of the year, you must include only that period’s income and expenses. This helps keep records clear and accurate.
Renting Part of Your Own Home? Special Rules Apply
If you rent out part of your main home—like a basement or one room—there are special tax rules. If you rent it below market price to a family member and don’t make a profit, you may not have to report it.
But if you charge market rent, even to family, you must report the income. Also, if you claim Capital Cost Allowance (CCA) on that space, it may affect your ability to avoid taxes when selling the house later using the Principal Residence Exemption (PRE).
Expenses You Can Deduct From Rental Income
Landlords can lower their taxable income by deducting certain costs. These include:
- Property taxes (for the rental space)
- Mortgage interest (not the full mortgage, just the interest part)
- Insurance costs (only the portion related to the rental)
- Repairs and maintenance (if they don’t add value)
However, not every cost is deductible, so it’s smart to check or ask a tax advisor.
Regular Repairs vs. Long-Term Improvements
Basic repairs (like fixing a leak or repainting) can be deducted in the year they happen. But capital improvements (like building a deck or installing a new roof) must be claimed over several years.
Claiming Depreciation with CCA
Capital Cost Allowance (CCA) helps landlords claim depreciation on buildings and items like appliances or furniture. But there are limits:
- You can’t use CCA to create a rental loss.
- If part of your home is rented, using CCA may remove your Principal Residence Exemption when you sell.
2025 CCA Quick Guide:
- Buildings: Up to 4%
- Furniture & Appliances: Up to 100% (some can be written off immediately)
- Improvements: Claimed over time
Can You Deduct Travel Expenses?
Only certain travel costs are allowed. You can deduct travel if you own multiple rental properties and need to travel between them. But if you only have one property, travel costs usually aren’t allowed.
Rules for Short-Term Rentals (Like Airbnb)
Starting in 2024 and continuing in 2025, short-term rental owners must follow local rules. If they don’t have the right license, they can’t deduct rental costs or claim CCA. That means they must report all their rental income without deductions—resulting in higher taxes.
Deducting Loan Interest: Know the Limits
Interest on loans used to buy or upgrade rental property is usually deductible. But if you used the money for personal reasons, you can’t claim the interest.
You can also add the loan interest to the adjusted cost base of the property, which might lower your capital gains taxes when you sell.
Joint Ownership and Foreign Landlords
If a rental is owned with someone else (like a spouse), income must be split the right way. If one owner is not a Canadian resident, you may need to:
- File a UHT (Underused Housing Tax) return
- Pay a 25% withholding tax on gross rental income (unless you file under Section 216 to reduce it)
Selling a Property Quickly? Watch Out for Tax Impacts
If you sell a property less than 12 months after buying it, and you make a profit, the CRA may tax it as business income instead of capital gains. This could mean a higher tax bill and the loss of your Principal Residence Exemption.
Some exceptions apply—such as job relocation, divorce, or death—but they must be clearly explained and proven.