Canadian rental income tax calculator

Rent is ordinary income, taxed at whatever rate you already pay

There is no rental tax rate. Net rental income — rent received minus deductible expenses — is added to your other income and taxed on the same schedule as a salary.

On $30,000 of rent with $18,000 of expenses, $12,000 is added to your return. With $85,000 of other income in Ontario that costs $3,558 — an effective 29.6%, because it sits on top of everything else at your marginal rate of 29.6%.

Which means the expense side is where all the money is. It also means one thing worth knowing before anything else: a rental loss can be deducted against your other income, unlike a capital loss, which can only offset capital gains. On the $2,000 loss in a bad year, that is worth $593 against your salary.

The line that decides everything: current or capital

The CRA splits every outlay in two. Current expenses give a short-term benefit and come off this year's income in full. Capital expenses give a lasting benefit and do not — they are added to the cost of the property and recovered slowly, if at all.

Deductible this year:

— Mortgage interest — the interest only, never the principal repayment

— Property tax

— Insurance

— Utilities you pay

— Advertising for tenants

— Repairs and maintenance that restore the property rather than improve it

— Property management and condo fees

— Accounting and legal fees related to the rental

— Motor vehicle costs, within strict limits

Not deductible this year:

— The purchase price of the property itself

— Improvements that better the property beyond its original condition — a new addition, replacing a roof with a materially better one

— Anything with a lasting benefit rather than a short-term one

— Land, which is never depreciable at all

The classic disagreement is the roof. Replacing shingles with equivalent shingles restores the property and is current. Replacing them with a materially better roof improves it and is capital. The same tradesman, the same invoice, and a different tax answer.

And the most common error of all: only mortgage interest is deductible, never the principal. The bank's statement shows one payment; only part of it is a deduction.

Depreciation looks free. On these numbers it loses $14,234

Capital cost allowance is a deduction for the building wearing out. It costs you nothing in cash — most rental buildings sit in Class 1 at 4.0% a year — and it is the single most tempting box on the form.

On a $400,000 building that is $16,000 of deduction a year, worth $3,558 at a marginal rate of 29.6%. Two rules limit it first: CCA cannot create or increase a rental loss, so on $12,000 of net income you can only claim $12,000 of the $16,000 available; and in the year you buy, the half-year rule allows only half.

Then comes the part nobody mentions. When you sell, everything you deducted comes back as ordinary income in one year. It is called recapture, and it is not a capital gain — it is fully taxable, all of it, in the year of the sale.

Claim $120,000 of CCA over the years at 29.6% and you save $35,580. Sell, and that $120,000 lands on your return in a single year, where it is taxed at an average of 41.5% because it stacks on top of your ordinary income. You pay back $49,814. Net result: $14,234 worse off, for a deduction that felt free every year you took it.

CCA is a deferral, not a saving, and it is only worth taking when your rate today is genuinely higher than your rate in the year you sell — which for most people, most of the time, it is not. Land, incidentally, is never depreciable at all, so the first job is separating the building from the lot.

Which class your building falls into

The rate depends on what it is made of and when you bought it:

Class 1 — 4.0%. Most rental buildings acquired after 1987, whatever they are built of. The default.

Class 3 — 5.0%. Buildings acquired before 1988, and certain additions to them.

Class 6 — 10.0%. Frame, log, stucco on frame, galvanised iron or corrugated metal buildings meeting particular conditions.

Furniture and appliances sit in their own classes at higher rates, and they carry the same recapture rule. The calculator above uses Class 1, which covers most residential rentals bought since 1988.

Four things that are not in the figure and change it

— GST/HST is not applied. Long-term residential rent is exempt, but short-term accommodation is taxable and once revenue passes $30,000 registration is required — a rule that catches a great many short-term hosts.

— Co-ownership is not split. Where a property is owned jointly, income and expenses are reported in proportion to each owner's share, and putting it all on one return is a common and expensive error.

— Non-resident landlords are subject to a 25% withholding on gross rent, not on net income, unless a section 216 election is filed. Nothing here applies to them.

— Quebec landlords file a separate provincial return with its own schedule; the provincial tax here is calculated on Revenu Québec's rates but the filing mechanics differ.

The co-ownership point deserves emphasis because it is so easily got wrong: where two people own a property together, each reports their share of income and expenses. Putting the whole thing on the higher earner's return is not a planning choice, it is a misfiling, and the CRA reassesses it.

Where these rules come from

Both from the CRA, read on the date shown:

CRA — T4036 Rental Income (CCA classes and rates, the half-year rule, the rule against creating a loss with CCA, and recapture on disposition) — read 2026-09-08. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4036/rental-income.html

CRA — Current or capital expenses (the distinction that decides what you may deduct this year) — read 2026-09-08. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/current-expenses-capital-expenses.html

The three CCA rules quoted above are the guide's own words: *"You cannot use CCA to create or increase a rental loss"*, *"you can usually claim CCA only on one-half of your net additions to a class"* in the year of acquisition, and on disposal *"you may have to add an amount to your income as a recapture of CCA"*.

Capital gains on selling the property are not calculated. The inclusion rate that decides how much of a gain is taxable has been proposed, deferred and contradicted, and no figure for it is published on this site until it can be read off a document that settles it. Recapture of CCA, which IS ordinary income and not a capital gain, is calculated.

Questions

How is rental income taxed in Canada?

As ordinary income, at your marginal rate. There is no separate rental rate. On $30,000 of rent less $18,000 of expenses, the $12,000 of net income costs $3,558 in Ontario with $85,000 of other income — 29.6% at the margin.

Can I deduct my mortgage payment?

Only the interest. The principal repayment is not an expense — it buys you equity — and treating the whole payment as deductible is the commonest error on a rental schedule.

Should I claim CCA on my rental property?

Usually not. It is a deferral, not a saving: everything you deduct comes back as ordinary income when you sell, in a single year, where it stacks on your other income at a higher rate. Claiming $120,000 at 29.6% saves $35,580 and costs $49,814 on the sale — $14,234 worse off.

Can a rental loss reduce my other income?

Yes — unlike a capital loss, which can only offset capital gains. A $2,000 rental loss is worth $593 against a $85,000 salary in Ontario. But CCA cannot be used to create or increase that loss.

What is the difference between a current and a capital expense?

A current expense restores the property and comes off this year's income; a capital expense improves it beyond its original condition and is added to the property's cost instead. Repairing a roof is current; replacing it with a materially better one is capital.

Do I charge GST/HST on rent?

Not on long-term residential rent, which is exempt. Short-term accommodation is taxable, and once that revenue passes $30,000 over four consecutive quarters you must register and charge it — the rule that catches most short-term hosts.