Rental expenses you cannot deduct

Land transfer taxes

You cannot deduct land transfer taxes you paid when you bought your property. Add these amounts to the cost of the property.

Mortgage principal

You cannot deduct the repayments of principal on your mortgage or loan on your rental property. For information about the interest part of your mortgage, go to Line 8710 – Interest and bank charges.

Penalties

You cannot deduct any penalties shown on your notice of assessment or notice of reassessment.

Value of your own labour

You cannot deduct the value of your own services or labour.

Personal portion of expenses

If you rent part of the building where you live, you can claim the amount of your expenses that relate to the rented area of the building. You have to allocate the expenses that relate to the whole property between your personal part and the rented area. You can split the expenses using square metres or the number of rooms you are renting in the building.

For example, if you rent 4 rooms of your 10-room house, you can deduct:

  • 100% of the expenses that relate only to the rented rooms, such as repairs and maintenance of the rooms; plus
  • 40% (4 out of 10 rooms) of the expenses that relate to the whole building, such as taxes and insurance.

If you rent rooms in your home to a lodger or roommate, you can claim all of the expenses for the part you are renting. You can also claim a portion of the expenses for the rooms in your home that you are not renting that both you and your lodger or roommate use. You can use factors such as availability for use or the number of persons sharing the room to calculate the allowable expenses. You can also calculate these amounts by estimating the percentage of time the lodger or roommate spends in these rooms (for example, the kitchen and living room).

Fill in Part 4 – Expenses on form T776 as follows:

  • enter the full amount of each expense under "Total expenses"
  • enter the part of each expense that was for personal use under "Personal portion"
  • add up the amounts in each column and enter the result for" Total Expenses" on amount A, and enter the "Personal portion" on line 9949
  • subtract the personal portion total from the total expenses to get your total deductible expense and enter this result on amount 7

If you are a co-owner or partner in a partnership, enter the personal portion of the expenses for all co-owners or partners at line 9949.

You cannot claim the expenses for renting part of your property if you have no reasonable expectation of making a profit.

For more information on renting part of your personal residence, go to Changing part of your principal residence to a rental property.

Example

Rick rents out 3 rooms of his 12-room house. He is not sure how to split the expenses when he reports his rental income. Rick's expenses were property taxes, electricity, insurance, and the cost of advertising for tenants in the local newspaper.

Rick can claim the part of his expenses that relates to the area of the property he rented in the current tax year. Since Rick rented 25% of his residence (3 out of 12 rooms), he can deduct 25% of his property taxes, electricity, and insurance costs from his rental income. He can deduct the full amount of the advertising expense, since this expense relates only to the rented part.

When he completes form T776, Rick enters the full amount of each expense in the “Total expense” column. Then, in the “Personal portion” column, he shows the part of each expense that relates to his personal use. In this case, he enters 75% of the property taxes, electricity, and insurance costs for the property. He will not enter anything for advertising in the “Personal portion” column.

Rick can also claim capital cost allowance (CCA) on the rented part of the property if it does not create or increase a rental loss and he is not designating the building as his principal residence.

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