9- Leasing

Income

Rental income is income from property if the taxpayer rents space and provides basic services only, such as heat, light, parking and laundry facilities. However, if the taxpayer provides additional services to tenants such as cleaning, security and meals, the taxpayer may be considered to be carrying on a business. The following comments relate only to rental income from property.

Unlike other income from property, net rental income or loss is included in the calculation of earned income for RRSP purposes (see Section VIII).

Mandatory reporting (Quebec)

In Quebec, the RL-31 slip must be prepared by all persons or corporations that own a building with at least one rental unit. For the 2024 year, a copy of this slip will have to be remitted before February 28, 2025 to all individuals renting or subletting a unit as at December 31, 2024. Information provided on this slip is required for the purposes of the Solidarity Tax Credit (see Section II).

Losses

A taxpayer has a rental loss if rental expenses, before depreciation, exceed gross rental income. A rental loss is deductible against other sources of income if the rental expenses were incurred to earn a profit.

Expenses

A taxpayer may deduct any reasonable expenses incurred to earn rental income. Current expenses may be deducted in the year they are incurred but capital expenditures, which provide a lasting benefit or advantage, are deducted through capital cost allowance. When a taxpayer makes major repairs to a rental property, he/she has to determine whether the expense is current or capital. Capital expenditures include the acquisition price of rental property, legal fees connected with the purchase of the property, transfer fees and the cost of furniture and equipment included in the rental property.

The most common deductible expenses include:

• Municipal taxes, insurance, electricity;
• Commissions paid for finding new tenants;
• Landscaping costs;
• Maintenance and utilities costs;
• Accounting fees, interest expense, advertising costs;
• Fees to reduce the interest rate;
• Lease cancellation payments.

Finance costs (interest and other costs) have to be taken into account for purposes of AMT (see point 12 of this section) to the extent they create a rental loss. This may be particularly important to taxpayers deducting substantial rental losses.

Special Situations

Renting housing to a family member at a below-market rate

Generally speaking, Revenu Québec’s administrative position is to accept the deduction of expenses related to housing rented to a family member (related person) using the same percentage as the difference between the rent paid by the parent and the fair market value of the rent. For example, where the rent paid by the parent is equivalent to 50% of the rent for this type of accommodation in a given neighbourhood, the deductible expense also represents 50%. This administrative position does not apply to housing inhabited by the lessor and no expense relating to this housing is deductible.

Where housing is rented to a related person, the CRA accepts the deduction of rental loss as long as the rent paid is equivalent to the amount that a third party would be asked to pay and there is a reasonable expectation of profit.

Non-compliant short-term rentals

Starting in 2024, expenses incurred to earn income from short-term rental of residential property (on Airbnb, for example) including interest charges are not deductible where this kind of rental is prohibited in the given jurisdiction (province or municipality) or where the operator does not respect the applicable license requirements.

In Quebec, this restriction applies to residential property located in Quebec which is offered as a rental for a period not exceeding 31 days and which does not respect the requirements specified in the Tourist Accommodation Act and its regulations. The non-compliance of a short-term rental in Quebec is therefore not determined under the rules of a municipality or other province.

Renovations for Disabled Persons

A taxpayer who renovates an existing rental property to accommodate disabled persons may deduct outlays and expenses⁹ as current expenses that do not have to be amortized. Expenses incurred for disability-related equipment such as an elevator car with Braille position indicators, certain telephone devices and disability-specific computer attachments are also considered current expenses.

Soft Costs

Costs incurred during the period of construction, renovation or alteration of a property, such as interest, promotion expenses, legal fees, accounting fees and property taxes are not deductible and must be added to the cost of the property.

Motor Vehicle

Motor vehicle expenses may be deducted if the vehicle is used to transport tools and materials to the rental property and if the owner personally does the necessary repairs and maintenance to the property. A taxpayer who has more than one rental property may deduct expenses in respect of a motor vehicle used for collecting rents, supervising repairs and managing the properties.

Capital Cost Allowance

Capital cost allowance may not be used to create or increase a rental loss. Furthermore, a taxpayer may not claim capital cost allowance on the cost of land. A rental property that costs $50,000 or more must be included in a separate class. The most currently used capital cost allowance rates are indicated in Corporate Taxation tables.

If you claim capital cost allowance on a rental property, you might have to include recaptured capital cost allowance in your income in the year you sell it.

⁹ In Quebec, an eligibility certificate may be required from the Régie du bâtiment.