Rental property tax deductions in Canada is one of the easiest ways Ontario landlords can reduce how much tax they pay — yet it’s also one of the most misunderstood topics.

Many landlords miss deductions not because they’re careless,
but because the rules feel confusing and overly technical.

Let’s simplify it.

How Rental Property Tax Deductions Work in Canada

In Canada, any rent you collect is considered taxable income.

That part is clear.

What’s often missed is this:
you’re only taxed on what’s left after eligible expenses are deducted.

This is the foundation of rental property tax deductions Canada.

Here’s the basic idea:

Rental income – rental expenses = taxable rental income

You pay tax on the smaller number — not the full rent collected.

Common Rental Property Tax Deductions Canada Allows

Depending on your situation, rental property tax deductions Canada can include several everyday costs.

Mortgage Interest

You can usually deduct:

• Interest paid on a rental mortgage
• Interest on borrowed funds used for renovations

You cannot deduct:

• Mortgage principal payments

Property Taxes

Municipal property taxes related to the rental are deductible.

If you rent out part of your home (like a basement):

• Only claim the rental portion
• This is usually based on square footage

Insurance

Property insurance for the rental unit is deductible.

Again, if it’s part of your home:

• Claim only the portion tied to the rental space

Utilities

You may deduct utilities you pay for, such as:

• Heat
• Electricity
• Water
• Cable

For basement apartments, only deduct the rental portion.

Repairs vs. Improvements (A Common Mistake)

One area where landlords struggle with rental property tax deductions is understanding repairs versus improvements. Repairs are generally fully deductible in the year they occur, while improvements are considered capital expenses and are deducted over several years through Capital Cost Allowance (CCA).

Repairs

• Fix something back to its original condition
• Often deductible in the same year

Examples:

• Fixing drywall
• Replacing a broken fixture

Improvements

• Increase the value or lifespan of the property
• Written off over time, not all at once

Examples:

• New flooring
• Kitchen upgrades

Mixing these up is a common CRA issue.

Rental Property Tax Deductions for Basement Suites

If you rent out part of your main home, rental property tax deductions require you to be proportional.

This means:

• Claim only the percentage used as a rental
• Use square footage or reasonable usage
• Be consistent year to year

This applies to utilities, insurance, and property taxes.

Why Rental Property Tax Deductions Affect Cash Flow

Taxes are only one piece of the picture.

Your rental property tax deductions, mortgage structure, and cash flow all work together.

When they’re aligned, you may:

• Keep more money each month
• Reduce financial stress
• Make better long-term decisions

Sometimes, a small mortgage adjustment can improve cash flow more than people expect.

Final Thoughts for Ontario Landlords

Rental property tax deductions can make a real difference — but only if they’re understood and used correctly.

I don’t sell mortgages.
I help people understand their options so they can move forward with confidence.

Frequently Asked Questions: Rental Property Tax Deductions in Canada 

What rental expenses can landlords deduct in Canada?

Landlords can usually deduct eligible expenses from their rental income before paying tax. Common deductible expenses include mortgage interest, property taxes, insurance, utilities, repairs, and professional fees. You are taxed only on the net rental income after expenses.

Is rental income taxable in Canada?

Yes. All rental income must be reported to the CRA. However, eligible expenses can be deducted first, which reduces the amount of income you’re taxed on.

Can I deduct my full mortgage payment on a rental property?

No. Only the interest portion of your mortgage payment is deductible. The principal portion is not considered a rental expense.

What expenses are deductible in the same year they’re paid?

Expenses that maintain the property — often called current expenses — are usually deductible in the year paid. These may include repairs, maintenance, insurance, advertising, and accounting fees.

What’s the difference between repairs and improvements?

Repairs restore the property to its original condition and are often deducted right away. Improvements increase the property’s value or lifespan and are written off over time. Mixing these up is a common tax mistake.

Can I deduct expenses if I rent out my basement?

Yes. If you rent out part of your primary residence, you can usually deduct a portion of expenses such as utilities, insurance, and property taxes. The amount is typically based on square footage or usage.

Are utilities deductible for rental properties?

If you pay utilities like heat, electricity, or water, you may deduct the portion related to the rental unit. If the rental is part of your home, only the rental portion applies.

What CRA form is used to report rental income and expenses?

Most landlords use Form T776 to report rental income and expenses. This helps keep everything organized and consistent with CRA requirements.

Why does my mortgage strategy matter for rental properties?

Your mortgage structure affects cash flow, tax efficiency, and long-term planning. In some cases, adjusting how a rental mortgage is set up can improve monthly finances and flexibility.

📩 If you own a rental property in Ontario and want to review your mortgage or cash flow strategy, send me a quick message or book a call.

No pressure. No judgement. I’ll break it down clearly.

— Mike

Mortgage Agent Level 2| Ontario
Dominion Lending Centres Edge Financial #10710