If you had rental income in 2016 from renting out a property (a house, an apartment, rooms, space in an office building, or other property) that you own, you’ll need to use the T776 form to report your gross rental income, expenses, and any capital cost allowance for the year. You can own rental property by yourself or with someone else as a co-owner. If you’re a co-owner, your share of the rental income or loss will depend on your share of the ownership.
Note: If you’re a resident of Québec, you’ll also need to complete the TP-128-V: Income and expenses respecting the rental of immovable property form. Fortunately, the T776 and the TP-128-V forms are combined in H&R Block's tax software, so you can complete both at the same time!
The rental income you receive can be in the form of cash or cheque, services, or kind (goods instead of cash) and might include more than the rent you receive each month. Your rental income can also include the following:
- Premiums and leases which are amounts for:
- Granting or extending a lease or sublease
- Permitting a sublease or
- Canceling a lease or sublease
- Sharecropping (which is income from renting farmland for cash or as a share of the crop)
Tax tip: If you had rental income from sharecropping, report any cash received as gross rent and the fair market value of your crop share as other related income on the T776/TP-128-V page in H&R Block’s tax software.
Rental income is usually reported on a calendar year basis – from January 1 to December 31. In most cases, you’ll calculate your rental income using the accrual method. According to this method, you:
- include rents in income for the year in which they’re due, whether or not you receive them in that year and
- deduct your expenses in the year you paid them, regardless of when you actually paid them
However, if you have no rent receivable and no expenses outstanding at the end of the year, you can use the cash method. According to this method, you include rents in income in the year you receive them and deduct expenses in the year you pay them. You can use the cash method only if your net rental income or loss would be practically the same if you were using the accrual method.
Remember, keep all records related to your rental property income and expenses in case the Canada Revenue Agency (CRA) and/or Revenu Québec asks to see it at a later date.
Do I have rental income or business income?
If you’re earning income from renting out a space and by providing basic services only (such as heat, light, parking, and laundry services), you’re earning rental income. If you’re providing additional services to your tenants such as cleaning, security, and meals, you’re likely operating a business. If that’s the case, you’ll need to complete the T2125/TP-80: Statement of business or professional activities form instead of the T776.
What expenses can I deduct?
Generally speaking, you can deduct any reasonable expense you paid to earn rental income. The two basic types of expenses are:
- current expenses and
- capital expenses
Current expenses are on-going expenses that provide a short-term benefit. For example, you can deduct the cost of repairs to keep a rental property in the same condition as it was when you bought it and claim the cost of using your car to transport tools to the property for such repairs. You can deduct current expenses from your gross rental income in the year you paid them. Refer to the Canada Revenue Agency (CRA) website for a full list of current expenses you can deduct.
On the other hand, capital expenses provide a benefit that usually lasts for several years. For example, costs to buy or improve your property are capital expenses. Generally, you can’t deduct the full cost of these expenses in the year you paid them. Instead, you deduct their cost over a period of several years as capital cost allowance (CCA). Capital expenses can include:
- the purchase price of rental property
- legal fees and other costs connected with buying the property and
- the cost of furniture and equipment you are renting with the property
Note: You can’t deduct expenses such as the value of your own labour, penalties shown on your notice of assessment or reassessment, your mortgage principal, or land transfer taxes.
The CCA or the cost of depreciation you can claim depends on the type of rental property you own and the date you bought it. A specific rate of CCA applies to each class of property. For example, if you have a rental building which you bought after 1987, it belongs to Class 1 and has a CCA rate of 4%. You claim CCA on the capital cost of the property minus the CCA, if any, you claimed in previous years. The remaining balance declines over the years as you claim CCA. Click here to find out what class your rental property belongs to.
The amount that’s left after you deduct your CCA from the total capital cost of your property is the undepreciated capital cost (UCC). Each year, the CCA you claim reduces the UCC of the property. In other words, your UCC at the start of the year is:
Total capital cost minus CCA claimed in the previous years
I live in a rental property that I own
If you rent out a portion of the residence where you live, you can claim the amount of expenses you paid during the year that relate to the rented portion of the building. To do this, you’ll need to divide the expenses that relate to the whole property between the part in which you live and the part(s) that you rent out. You can split the expenses using the area (for example, square meters) or the number of rooms you are renting in the building, as long as the split is reasonable.
For example, if you rent 5 out of the 10 rooms in your house you can deduct:
- 100% of the expenses that relate specifically to the rented rooms (like repairs and maintenance) and
- 50% (5 out of 10 rooms) of the expenses that relate to the whole building (like taxes and insurance)
If you have a lodger in your home, you can also claim expenses for rooms that you aren’t renting but that both you and your lodger use on a regular basis.
When completing the T776/TP-128-V page enter the full amount of the expenses in the column labelled Total amount paid. In the Personal portion column, enter the part of each expense that was for personal use.
I sold my rental property in 2016
If you sold or are considered to have sold your rental property during the year, you’ll need to report the amount you received from the sale (proceeds of disposition) to the CRA by completing the complete Schedule 3 and Schedule G (if you’re a Québec resident) forms.
- the UCC of the class at the start of the year and
- the capital cost of any additions during the year
You have a terminal loss when you have disposed of all property within a class during the year, but you still have an amount that you haven’t deducted as a CCA. In the year that you dispose of your rental property, you can subtract your terminal loss from your rental income.
What if the rental income was earned by a property located in another country?
Even if the property that generated rental income for you in 2016 is located outside of Canada, you still need to report this income on the T776 page of your return. You might notice that the T776 page in H&R Block’s tax software doesn’t have a specific place to enter your foreign rental income; don’t worry – you can still enter all the information related to your rental property here. To do this:
- In the Property details section, enter the apartment number (if applicable), street number, street name, and city where the foreign rental property is located.
- Enter the postal code of your personal residence in the designated field. You can go ahead and leave the Province or territory field empty. When finished, your entry will look something like this:
- If the Canada Revenue Agency (CRA) needs more information regarding your foreign rental property, they’ll contact you directly.
- Make sure you’ve converted your foreign rental income and expenses to Canadian dollars before reporting it on your return. You can do that here.
Where do I claim this?
Important: If you co-own your rental property with your spouse or common-law partner, both of you must complete the T776 page in your returns with the same information. Remember, you’ll both need to include your percentage of ownership in the Co-owner or partner details section of the page.
If you want to complete both the T776 and TP-128-V, make sure you tell us that you lived in QUÉBEC on December 31, 2016.
Follow these steps in H&R Block’s tax software to file your 2016 taxes:
- Under the PREPARE tab, click the OTHER icon. You will find yourself here:
- Under the OTHER TYPES OF INCOME section, select the checkbox labelled Rental property income and click Continue.
- When you arrive at the page for the Rental property income, enter your information into the tax software.