What rental property expenses are deductible in Canada? + Free calculator!
Note that the information provided herein should not be considered financial advice. I am not an accountant, and recommend seeking professional guidance specific to your personal circumstances.
Disclosure: This post may contain affiliate links, which means if you click on a link and make a purchase, I may receive a small commission at no extra cost to you.
Now that I’ve been investing in real estate for a few years, I’ve started to pick up a few tricks that make my life a whole bunch easier. One of those tricks is having a solid system in place for tracking my property income and expenses. Not only does this make for a super simple and professional hand-off to my accountant, it helps me understand exactly what I can deduct from my rental property income.
In Canada, there are two types of expenses considered by the CRA: current expenses and capital expenses. Current expenses are tax deductible, however capital expenses are not (at least immediately). Current expenses include repairs & maintenance, management fees, property taxes, advertising, insurance, interest and bank fees, legal and accounting fees, and more.
It is important to understand what you are able to deduct, as it can save you thousands of dollars on your annual tax return. In the information here I’ll break down the primary deduction categories, and make sure to check out the free Rental Property Tax Summary spreadsheet below! This spreadsheet will make you look like a pro, and keep everything in perfect order to hand off to your accountant this year.
Current expenses - so many possibilities
When I first started out I had no idea as to how many different expenses qualified as tax deductions. It really is a game changer, and opens up a whole new world compared to what is possible with T4 employment as your only form of income.
I’ve pulled together a table of the categories of current expenses considered by the CRA, and listed a guide to what you can and can’t claim. Just a reminder - I am not an accountant and highly recommend you seek professional guidance for personalized financial advice.
| Category | What you can claim | What you can't claim |
|---|---|---|
| Repairs & Maintenance | > All of those trips to Lowe's and Home Depot for fixes to your property > Contractors hired to make repairs and fixes > Re-keying locks > Paint, cleaning and repairs during tenant turnover > Professional service calls (ex. locksmith, plumber, electrician, appliance repair) > Landscaping & tree pruning |
> Your own personal labour > Capital purchases, items that improve overall value of the property |
| Insurance | > Property insurance > Mortgage insurance premiums |
> Personal insurance coverage |
| Interest and bank charges | > Mortgage interest (this is a big one!) > Bank account premiums |
> Any interest not tied to the property |
| Management and admin fees | > Property management costs > Background & credit checks |
> Your own personal labour & time |
| Professional fees | > Legal fees, ex. during a refinance > Property appraisals > Bookkeeping & accounting fees |
> Your own personal labour & time (notice a trend with this?) |
| Property taxes | > Municipal property taxes |
> N/A |
| Utilities | > Power, water, gas, waste & recycling collection > Internet if you provide for tenants > Other paid services you may provide such as Netflix, streaming services |
> Personal use portions of utilities if owner occupied / house hacking |
| Office expenses | > Computer software required for managing the property, such as AirDNA, Docusign, Microsoft Office, Adobe Acrobat or Creative Suite > Printers, paper > Portion of computer related purchases |
> Personal software > Personal use computer products |
| Motor vehicle expenses | > A portion of the following, if you use the vehicle to perform maintenance at one property, or perform property management activities on 2 or more properties: > Maintenance & repairs > Fuel and oil costs > Insurance > Vehicle licensing & registration > Auto insurance > Vehicle loan interest or leasing costs |
> Any portion of expenses relating to personal use of the vehicle |
| Advertising | > Listing fees for Airbnb, VRBO or Rentfaster > Signage costs > Internet marketing costs |
> N/A |
Although certainly not comprehensive, the list of potential deductions is substantial! If you have any questions about a specific application, refer to the CRA website on Rental expenses you can deduct.
What to do with capital expenses?
Capital expenses can be claimed in one of two ways. The first is to be claimed over the course of several years as a Capital Cost Allowance (CCA), which is allowed for depreciable assets such as buildings. In this case, you take a portion of the amount and spread out the cost over many years. The exact length of time will depend on the type of asset, so be sure to discuss this in detail with your accountant.
The second way is to hold on to your receipts and invoices and use them to negate capital gains taxes that you would incur at the time of sale. So the construction of an Additional Dwelling Unit (ADU), an addition, or other substantial renovation costs can be used to reduce that capital gains impact later in life when you sell, which can be a huge advantage. So be sure to hang on to those invoices and file them somewhere safe!
Caution! Why NOT to go overboard with deductions
Now that I’ve shown you many different types of deductions that you can apply, I’d like to share a word of caution. Each of these deductions will reduce your taxable income, which is what banks and financial institutions will use to qualify you on loans and mortgages. If you go too far, your taxable income may be reduced so far that you may have trouble qualifying on your next mortgage. I strongly encourage you to work with your mortgage broker or bank to determine how much income you will need for your future plans.
Your accountant and bookkeeper will be working to reduce your tax burden as their first priority, and may push to maximize your deductions. It is important to let them know your plans and how they relate to your taxable income requirements in advance. They can use this information to help you find the best solution. If you run any of your operations out of a corporation, they may also be able to help you create a payroll and/or dividend payment plan that aligns to your goals.
So be careful! You might not want to claim every single tax deduction, even if you have to pay a little extra in taxes as a result.
What other tax deductions do you use?
What do you think I might have missed? Do you have some less well known deductions that you leverage? How do you calculate your rental property deductions? Track in a big spreadsheet? Hand over a big pile of receipts to your bookkeeper or accountant?
Take a peek at the tax deduction spreadsheet that I actually use with my accountant. In case you missed it, I’ve left the link below. I’d love to hear your feedback, and how it compares to what you do. Let me know in the comments below!