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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) article Rental income or business income?
The federal government has proposed to disallow any tax deductions for short-term rentals that fit certain circumstances. See Proposal to Crack Down on Non-Compliant Short-Term Rentals.
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
 | is reported on lines 13500 to 14300 (line 135 to 143 prior to 2019) of the tax return, as part of self-employment income. The forms to be completed can be found in the link below to guide T4002. |
| is subject to Canada Pension Plan (CPP) premiums on net income. |
| is included in working income for purposes of the Canada Workers Benefit (CWB) - prior to 2019 this was the Working Income Tax Benefit (WITB). |
| is included in self-employment income for calculation of the refundable medical expense supplement. |
| is included in earned income for purposes of calculating the child care expense deduction. |
| self-employed person can choose a year-end after December 31st to defer tax on the first fiscal year, but make sure this is what you want to do. |
| personal income tax return filing due date for the individual (other than a business whose expenditures are primarily in connection with a tax shelter) and their spouse is June 15th, but taxes are still payable by April 30th |
Property Income
| from real estate rentals is reported on Form T776, and on line 12600 rental income (line 126 prior to 2019) of the tax return. |
| is not subject to CPP premiums. |
| is not included in working income for the Canada Workers Benefit (CWB). |
| is not included in self-employment income for calculation of the refundable medical expense supplement. |
| is not included in earned income for purposes of calculating the child care expense deduction. |
| all rental income from property is reported on a calendar year basis. |
| personal income tax return filing due date is April 30th. |
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 Partnership
The tax treatment for each type of rental income is the same for an individual or a partnership. If you're not sure if you have a partnership, see Income Tax Folio S4-F16-C1, What is a Partnership?
New: For a partnership carrying on a rental business, it is likely that an Underused Housing Tax return must be filed for 2022, with the first return due date deferred to April 30, 2024.
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.
TaxTips.ca Resources
Real Estate Rentals - all topics
Personal Income Tax Return Due Date
Canada Revenue Agency (CRA) Resources
Rental income or business income?IT-434R Rental of Real Property by Individual (Archived)
IT-434RSR Rental of Real Property by Individual (Archived)
Form T776 Statement of Real Estate Rentals
T4002 Business and Professional Income Guide, with links to the forms required to be filed with the personal income tax return.
IT-364 Commencement of Business Operations
Filing Due Dates - see Important dates for Individuals
Tax Tip: If you plan to pursue property rental, know the tax rules, and get professional advice!
Revised: September 20, 2024