A landlord must be meticulous and keep track of all expenses and invoices in case of an audit by the Canada Revenue Agency (CRA).GETTY IMAGES
Falling home prices and relatively low interest rates have led some Canadians to consider buying investment properties and renting them out for extra income.
Experts say there are pros and cons to becoming a landlord and tax implications to note.
“There are a lot easier ways to make passive income than rental properties,” says Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth in Toronto.
Mr. Golombek highlights the time and money required to be a landlord. For instance, if the property is not nearby, landlords might need to hire a property manager to oversee it. For those who aren’t handy, tradespeople will need to be hired to do repairs. Potential landlords also need to know the local market and how easy – or difficult – it might be to find reliable tenants and to get rid of bad renters, Mr. Golombek says.
If those issues are not a deterrent, Mr. Golombek says landlords need to understand the tax implications of rental ownership. For starters, he points out rental income is taxable at an individual’s marginal tax rate, which could be as high as 54 per cent, depending on your income and the province you live in.
While the rates can be high, “the good news is that you can write off expenses, but not all expenses,” Mr. Golombek says.
Typical expenses that can be deducted, he adds, include mortgage interest, property taxes, insurance, utilities, legal and accounting fees, property management costs, real estate agent fees to find tenants, condo fees, repairs and maintenance.
Some expenses that can’t be claimed include mortgage principal payments and the value of your personal services to maintain the property. Personal expenses also don’t qualify, says Kim Moody, founder of Moodys Tax in Calgary.
“If I go out for dinner with my wife and discuss our tenants, is that deductible? It’s not,” he says. “If I go on a trip and have a directors’ meeting and discuss our property? It’s not deductible.”
However, “anything that is expended in order to earn that income is deductible.”
If the rented area is part of your home, Mr. Moody adds, you’re only able to deduct the portion for that rentable area.
If you own a short-term rental and it’s not in compliance with local rules – such as restricting rentals to 30 days or more or needing to be licensed – then expenses may not be deductible, he says.
Be ready for the CRA
A landlord must be meticulous and keep track of all those expenses and invoices in case of an audit by the Canada Revenue Agency (CRA), says Evelyn Jacks, a tax specialist based in Winnipeg and president of the Knowledge Bureau.
The CRA completed 14,854 real-estate audits between April, 2024 and March, 2025, an increase of 12,733 from the previous year. Those audits generated $849-million in taxes and penalties, up from $648.5-million the year before.
“So, it’s important to keep that documentation and order it well so that it’s retrievable,” either digitally or in paper format, Ms. Jacks says.
Landlords also need to understand that major repairs or upgrades to improve the property’s long-term value are not immediately deductible but are added to the building’s capital cost, Ms. Jacks says.
For instance, she explains, replacing a few shingles blown off in a storm is a deductible expense. Replacing the entire roof is not. Instead, it’s added to the capital cost of the building and can reduce your capital gain down the line.
“That’s a place where people really fall into traps during an audit,” she says. “They expense those new roofs, those new floors that they put in when those things are actually a capital improvement and not regular maintenance.”
An exception is accessibility modifications, such as adding railings to a bathtub or widening a doorway, which are deductible expenses.
Legal fees to purchase the property are part of your capital cost, but legal fees to collect rents are deductible expenses, Ms. Jacks says.
The capital cost allowance (CCA) is a tax deduction that allows property owners to depreciate the cost of a building over several years. Land is excluded and it can’t be depreciated. In addition, you can’t use the CCA to create or increase a rental loss, Mr. Golombek says.
“There are certain rules that govern depreciation, in terms of claiming a capital cost allowance, that put you into a loss situation. So, you’ve got to be a little bit careful there.”
When you sell a rental property that has increased in value, you must report the capital gain as you would with other investments, such as stocks.
“Fifty per cent of capital gains are taxable and you’d have to pay the capital gains tax when you sell,” Mr. Golombek says.
He notes that some capital gains from selling a property can be offset by capital losses from other investments, such as stocks, which can be carried forward from previous years.