Rental Property: Which Expenses You Can Deduct, and Whether to Claim Depreciation

Deductible expenses, the pros and cons of CCA, recapture when you sell

Scott Tang, CPAUpdated 2026-11-052026 rules4 min read

If you rent out a property in Canada, the rent less reasonable expenses — your net rental income — is included in your income. The two questions we are asked most often: which expenses you can deduct, and whether to claim depreciation (capital cost allowance, CCA) — claiming it means less tax now, but when you sell, it may be "recaptured".

T776

The form for reporting rental income and expenses

Residential buildings are commonly Class 1, at 4% of the declining balance; the asset class, first-year and accelerated rules are worked out separately

Can't create a loss

CCA can only bring net rental income down to zero; it can't create a loss

Recapture fully taxed

CCA recaptured when you sell is taxed as ordinary income, not half as with a capital gain

Which expenses you can deduct

Expense	Deductible in the year Current expenses	Capital expenditures Through CCA	Not deductible
Interest on borrowing	✓Interest on money borrowed to earn rent (what matters is how the money is used, not which property secures the loan)	—	✕Principal is not deductible
Property tax, home insurance	✓	—	—
Repairs and maintenance (restoring to original condition)	✓Fixing a tap, repainting	—	—
Improvements, additions, replacing entire systems	—	✓Additions, full renovations, new appliances	—
Condo fees, management fees, advertising	✓	—	—
Utilities paid by the landlord	✓	—	—
Legal and accounting fees	✓Those related to tax filing and collecting rent	◐Legal fees on the purchase are added to the cost	—
Your own time and labour	—	—	✕

Interest on borrowing

✅ Deductible in the year: ✓Interest on money borrowed to earn rent (what matters is how the money is used, not which property secures the loan)
🏗️ Capital expenditures: —
🚫 Not deductible: ✕Principal is not deductible

Property tax, home insurance

✅ Deductible in the year: ✓
🏗️ Capital expenditures: —
🚫 Not deductible: —

Repairs and maintenance (restoring to original condition)

✅ Deductible in the year: ✓Fixing a tap, repainting
🏗️ Capital expenditures: —
🚫 Not deductible: —

Improvements, additions, replacing entire systems

✅ Deductible in the year: —
🏗️ Capital expenditures: ✓Additions, full renovations, new appliances
🚫 Not deductible: —

Condo fees, management fees, advertising

✅ Deductible in the year: ✓
🏗️ Capital expenditures: —
🚫 Not deductible: —

Utilities paid by the landlord

✅ Deductible in the year: ✓
🏗️ Capital expenditures: —
🚫 Not deductible: —

Legal and accounting fees

✅ Deductible in the year: ✓Those related to tax filing and collecting rent
🏗️ Capital expenditures: ◐Legal fees on the purchase are added to the cost
🚫 Not deductible: —

Your own time and labour

✅ Deductible in the year: —
🏗️ Capital expenditures: —
🚫 Not deductible: ✕

If you live in part of the property yourself (for example, you rent out the basement), you can deduct only the share for the rented part. Repair or improvement is the question the CRA asks about most: restoring something to its original condition is a repair; making the property better than it was is an improvement.

Should you claim CCA?

Claim CCA

Pay a bit less tax each year now

Recaptured when you sell

The recaptured amount is fully taxed

Suits long-term holding, high income now and lower income later

Don't claim CCA

Pay a bit more tax now

No recapture when you sell

Only a capital gain

Suits a property you may sell within a few years, or when your income isn't high now

Item	Claim CCA	Don't claim CCA
Tax now	Less	More
When you sell	The recaptured amount is fully included in income	No recapture
Land	Not depreciable	Not depreciable
Can you change it each year?	Yes, you choose how much to claim each year (from 0 up to the maximum)	Yes

Points to watch

Short-term rentals must comply
Starting in 2024, if a short-term rental (such as Airbnb) doesn't meet local licensing or registration rules, the related expenses for the non-compliant period are not deductible, on a proportional basis.
Low rent to family or friends
If the rent is below market and there is no real intention to make a profit, you can't report a loss, and expenses have to be allocated based on the actual situation.
Turning your home into a rental
A change in use is usually treated as a sale at market value, and you can elect to defer it; claiming CCA affects this election and the principal residence exemption — see "Selling Your Home: Is It Taxable? Using the Principal Residence Exemption" in this series.
Separate records for each property
Keep separate records for each property and keep receipts for at least 6 years; co-owners report according to their share.

How Sheng Qian CPA can help

Separate repairs from improvements
From your receipts, we sort out which expenses are deductible this year and which go through CCA.
CCA worked out every year
Based on your income and plans to sell, we work out how much CCA to claim this year.
Calculate recapture before you sell
We work out the recapture and the capital gain before you decide on timing; for prices, see "What Sheng Qian CPA Can Do for Investors: Tax Returns, Accounts and Annual Planning" in this series.

Sources

Disclaimer

This article is general information only and is not tax advice. Everyone's situation is different; please consult a CPA about your specific arrangements. Service fees are as set out in our written quote.