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Rentals - Property or Business Income?

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Real Estate -> Is Rental Income Property Income or Business Income?

Rental Income - Property Income or Business Income for Tax Purposes?

In general, the number and kinds of service provided in relation to the rental of the property will determine whether the income is property or business income.  The more services that are provided, the more likely that the income will be considered business income.  The number of rental properties being managed will not affect the classification of the income.  For more detailed information, see the Canada Revenue Agency (CRA) Interpretation Bulletin IT-434 Rental of Real Property by Individual.

Why does it matter?

Property income and business income are treated differently for tax purposes.  The following are some of the differences in taxation of individuals.

Business income

bullet is reported on line 135 of the tax return, as part of self-employment income.
bullet is subject to Canada Pension Plan (CPP) premiums on net income.
bullet is included in working income for purposes of the working income tax benefit (WITB).
bullet is included in self-employment income for calculation of the refundable medical expense supplement.
bullet is included in earned income for purposes of calculating the child care expense deduction.

Property income

bullet from real estate rentals is reported on line 126 of the tax return.
bullet is not subject to CPP premiums.
bullet is not included in working income for the working income tax benefit (WITB).
bullet is not included in self-employment income for calculation of the refundable medical expense supplement.
bullet is not included in earned income for purposes of calculating the child care expense deduction.

One other important difference is that when the rental income is considered business income*, the filing due date for the individual and for their spouse is June 15th.  The due date for other individuals is April 30th.  However, any taxes payable are still due by April 30th.

* other than a business whose expenditures are primarily in connection with a tax shelter

To input rental income in the Canadian Tax and RRSP Savings Calculator, include rental income from business as self-employment income, and rental income from property as "other income".

Rental Income Received by a Corporation

When rental income is received by a corporation, the income is usually considered investment (property) income, and is not considered active business for purposes of the small business deduction.  A corporation whose principal purpose is to derive income from property is usually considered a specified investment business, and is not eligible for the small business deduction.

See all our articles related to Property Rentals.

See the following CRA publications:

bullet T4036 Rental Income Guide
bullet T4002 Business and Professional Income Guide
bullet Filing Due Dates

Tax Tip:  If you plan to pursue property rental, know the tax rules, and get professional advice!

Revised: April 02, 2017

 

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