Rental Income Tax in Ontario: A 2026 Guide for Landlords

If you own a rental property in Ontario, your net rental income (rent minus deductible expenses and any capital cost allowance) is added to your other income and taxed at your regular federal and Ontario marginal rate. You report it each year on Form T776 with your personal return. When you sell, you may owe tax on recaptured CCA and on half of any capital gain.

Here’s how it works for 2026, from everyday expenses to the day you sell.

How is rental income taxed in Ontario?

There is no special rental tax rate. Net rental income is simply part of your taxable income, so the tax depends on everything else you earn. A landlord with a $90,000 salary pays a much higher rate on rental profit than a retiree with a small pension. At the top bracket in 2026, the combined federal and Ontario rate on ordinary income is about 53.53%.

You report rental activity on Form T776, Statement of Real Estate Rentals. If you co-own the property, each owner reports their share of the income and expenses, normally based on ownership. For the 2026 tax year, the filing and payment deadline for most individuals is April 30, 2027.

If rental profit means you owe tax at filing time year after year, the CRA may ask you to pay quarterly instalments on March 15, June 15, September 15 and December 15. Our Ontario income tax calculator can show roughly how much extra tax a rental adds to your bill.

Which rental expenses can you deduct?

The CRA’s Rental Income guide (T4036) lists the expenses you can claim. The most common are:

• Mortgage interest (not the principal)
• Property tax
• Insurance
• Utilities you pay for the tenant
• Repairs and maintenance
• Condo fees
• Advertising for tenants
• Legal and accounting fees related to the rental
• Property management fees
• Reasonable travel to collect rent or do repairs, in some cases

You cannot deduct mortgage principal, the cost of the land, the value of your own labour, or the personal-use portion of any expense. Land transfer tax and legal fees on the purchase are not current expenses either; they are added to the cost of the property.

Is it a repair or a capital improvement?

This is where landlords most often get tripped up. A current expense recurs and gives a short-term benefit, so you deduct it in the year you pay it. A capital expense gives a lasting benefit, so you claim it gradually through CCA. The CRA’s guide sums it up simply: an expense that only restores a property to its original condition is usually current.

When an item is unclear, ask a few questions. Does it last for years? Does it improve the property beyond its original condition? Is it a separate asset, like an appliance? Is the cost large compared with the property’s value? The more “yes” answers, the more likely it is capital.

How does capital cost allowance work on a rental property?

CCA is the tax version of depreciation. You claim a percentage of the building’s undepreciated capital cost (UCC) each year. Key rules from the T4036 guide:

• Land is not depreciable. Split the purchase price between land and building.
• Most rental buildings are Class 1 at 4%. Depending on what a building is made of and when you bought it, it can fall into another class.
• First-year limits apply. In the year you buy, the claim is usually limited by the half-year rule, although the guide describes accelerated incentives for eligible property.
• CCA cannot create or increase a rental loss. You can only claim enough CCA to bring net rental income down to zero.
• Each rental property costing $50,000 or more is its own class. This matters when you sell.
• CCA is optional. You can claim any amount up to the maximum, including nothing.

The example shows why claiming CCA is a timing decision. It lowers tax now, but most of it comes back as recapture when you sell. If you sell for less than the building’s UCC, the shortfall is usually a deductible terminal loss rather than a capital loss.

What if you rent out part of your home?

Many Ontario homeowners rent a basement apartment or a room. You report the rent on Form T776 and split shared expenses (mortgage interest, property tax, utilities, insurance) between your home and the rental area. The CRA accepts a split based on square metres or the number of rooms you rent.

Think carefully before claiming CCA on the rented part of your own home. The CRA generally lets the whole property keep its principal residence status when the rental use is small compared with the home, you make no structural changes, and you claim no CCA on it. Claiming CCA can mean part of the gain becomes taxable when you sell, which usually costs far more than the CCA saved.

What happens when you sell a rental property?

When you sell, you report any recapture on the building and a capital gain (or loss) on both the land and building. The capital gains inclusion rate is 50%. The proposed increase to two-thirds was cancelled in March 2025, so half of the gain is added to your income. Our capital gains tax calculator gives a quick estimate.

If the property was your home at any point, the principal residence rules also apply. Since 2016, the CRA requires you to report every sale of a principal residence on Schedule 3 and make the designation on Form T2091(IND), even if the gain is fully exempt. If you forget, a late-designation penalty can apply of the lesser of $8,000 or $100 for each complete month the designation is late.

If you turn your home into a rental, or move into a former rental, you are normally treated as selling and buying it back at fair market value. In some cases you can elect to avoid that deemed sale, but the election has conditions and deadlines, so talk to your accountant before the change happens.

Federal Budget 2026 lands on November 5, 2026, and could change some of these rules, so check for updates before you sell.

Does the Underused Housing Tax still apply to landlords?

For 2025 and later years, no. The Underused Housing Tax (UHT) was eliminated, with Royal Assent on March 26, 2026, so no UHT is payable and no return is required for 2025 onward. The CRA’s UHT introduction (UHTN1) explains the change.

The older years still matter. Affected owners must still file, and pay if applicable, for 2022, 2023 and 2024, and late returns can still attract penalties and interest. Affected owners are mainly non-resident, non-Canadian owners and certain private corporations, partnerships and trusts that do not qualify as “specified Canadian” entities.

Canadian citizens and permanent residents who own property personally were excluded owners and did not need to file. One exception: in 2022, a citizen or permanent resident who held property as a trustee or as a partner could have been an affected owner. If your rental is held in a corporation, trust or partnership, check whether any of those years are still open.

Long-term residential rent is also generally exempt from HST, so most residential landlords do not charge it. Commercial and short-term rentals are different; our GST/HST team can help if you are unsure.

How MNJ CPA can help

We prepare T776 statements, sort repairs from improvements, plan CCA claims and handle the tax side of selling a rental or changing a property’s use. See our personal tax services or contact us to talk through your properties.