Lease and Rental Management
Rental income earned by Ontario landlords is taxable as business income or property income on your T1 personal return or T2 corporate return. However, the Income Tax Act allows landlords to deduct legitimate expenses against this income, significantly reducing the tax owing.
Mortgage interest (not principal) is deductible against rental income. This is one of the largest deductions available to leveraged investors. The interest portion of your mortgage payment — which is typically the majority of the payment in the early years of a mortgage — is fully deductible.
Ontario Tenancy Law
Property management fees, maintenance and repair costs, property taxes, insurance premiums, advertising costs, and accounting fees related to the rental activity are all deductible. Keep receipts and invoices organized through the year to substantiate these claims during CRA review.
Capital Cost Allowance (CCA) — tax depreciation on the building structure — is available but should be used carefully. CCA can reduce taxable income in the current year, but creates a larger recapture amount when the property is eventually sold. Consult your accountant before claiming CCA on rental properties.
Protecting Landlord Rights
The distinction between repairs (currently deductible) and capital improvements (depreciated over time) is important. Replacing a broken furnace is a repair. Installing a new deck where none existed before is a capital improvement. The line isn't always clear, and CRA audits often focus on this classification.
D&D Property Management provides monthly financial statements and year-end summaries that simplify tax preparation for our clients. Our detailed income and expense records make it straightforward for your accountant to prepare accurate rental income schedules.