All the Numbers

Renting out a suite

From the All the Numbers wiki · Renting part of a home

Renting out part of the home you live in is often called house hacking. It covers a basement suite, a rented room, one side of a duplex or a unit in a triplex. In each case the home has two uses at once, and the tax system treats the rented part as a small business in property while the rest stays a personal home. This entry covers the income and the costs. What the rental does to the tax on a later sale is a separate question, and so is how a lender counts the rent.

The income

Gross rental income is the rent actually earned in the year. There is no deduction for vacancy; a vacant month is rent that did not arrive.[1] In the planner, vacancy is an assumption that lowers the projected rent. Rent is added to your other income and taxed at your own marginal rate. A couple who own a home together each report their share of the rent and the costs, which is half each unless the plan says otherwise.[2]

The costs you can deduct

Costs that belong only to the rented area, such as a repair inside the suite, are deductible in full. Costs of the whole building, such as property tax, insurance, interest and utilities, are split between the personal and the rented area by square metres or by rooms. If three of twelve rooms are rented, the rented share is 25%.[3]

The CRA's guide lists the current expenses that qualify: advertising, insurance, mortgage interest, professional and management fees, property taxes, utilities, and repairs and maintenance. It also lists what does not qualify: land transfer tax (which is added to the cost of the property), mortgage principal, penalties, the value of your own labour, and capital improvements, which can only be written off through capital cost allowance.[4] Fees to obtain a mortgage on a rental property, such as an appraisal, a broker, mortgage legal fees or the default-insurance premium, are deducted evenly over five years rather than at once.[5] Interest has its own test, described in interest on borrowed money.

When the rental loses money

If the expenses were incurred to earn income, a rental loss can be deducted against your other income. There is no loss for a cost-sharing arrangement, such as a relative who pays a small amount towards the groceries and upkeep, and none where rent to someone you are not at arm's length is set below market. Expenses of renting part of the home are also barred where there is no reasonable expectation of profit.[6] A loss cannot be made bigger by claiming capital cost allowance; the claim stops at the net rental income.[7]

If a loss is larger than all your other income for the year, the excess is a non-capital loss. It can be deducted from taxable income in the 20 years that follow, and income for a year cannot go below nil.[8]

How a lender counts the rent

Lenders add part of the rent to your income when they test whether you qualify. CMHC will count up to 100% of the gross rent from a secondary suite in an owner-occupied two-unit home.[9] Conventional lenders often count less, and one common policy adds 50% of the gross rent.[10] For an insured mortgage on an owner-occupied building of three or four units, the largest loan is 90% of the price, against 95% for one or two units; see mortgage default insurance.[11]

What the planner does

  • Asks for the share of the floor space that is rented, the monthly rent, a vacancy rate and a yearly rent growth, and starts the rent in the month the purchase closes. Because the rented part is entered as a share of the floor area, a suite, a rented room or the side of a duplex all fit the same inputs.
  • Deducts the property tax, maintenance, insurance and utilities at the rented share, and the mortgage interest at the same share. It never deducts mortgage principal or land transfer tax.
  • Does not deduct the default-insurance premium or the fees to obtain the mortgage against the rent; the premium and its tax are treated as closing costs.
  • Taxes the net rent each year, for each owner, with the rest of the owner's income, and carries an excess loss forward as a non-capital loss.
  • Treats the rent as arm's-length market rent and the expenses you enter as qualifying. It does not test for a reasonable expectation of profit or for a below-market rent to a relative.
  • Counts the full rent of a two-unit home as income for the lender screen, and prices the home as two units when a suite is planned.
  • Never claims capital cost allowance, so the rented share stays covered by the principal-residence exemption under the planner's assumption that the rental is ancillary.

What it does not do

  • Short-term rentals, and the denial of expenses for units that do not meet municipal rules.
  • Rent to a relative below market, or a cost-sharing arrangement. The planner takes the rent and the expenses you enter as qualifying.
  • The rules for three- and four-unit buildings in the lender screen and the insurance limit. The engine holds them, but the planner does not offer those layouts yet, so your plan does not include them.

See also

  • Capital cost allowance · Capital cost allowance (CCA) is the tax write-off for the building part of a rental property, at 4% of the remaining balance a year for most rental buildings. Claiming it can cost the principal-residence exemption on a rented home and creates recapture on a sale, so the planner never claims it.
  • Capital losses and the superficial-loss rule · A loss on a non-registered investment first cancels capital gains in the same year; any excess carries back three years or forward without limit. A loss is denied if the same investment is bought back within 30 days.
  • Combined marginal tax rates · The marginal rate is the federal and Ontario tax on the next dollar of income. In 2026 it runs from 19.05% to 53.53% on ordinary income, and the top rate is lower on capital gains and dividends than on interest.
  • How a mortgage payment is worked out · A fixed-rate Canadian mortgage compounds its interest twice a year, not monthly, so the monthly payment comes from a rate slightly lower than the quoted rate divided by twelve. The default rate is 4.27%, and the rate stays fixed for the whole amortization.
  • Interest on borrowed money · Interest is deductible against rent only for money used to earn income from property, judged by what the money is used for now and not by what secures the loan. A refinance keeps the use of the loan it replaces, and a repayment reduces the deductible and non-deductible parts together.
  • Land transfer tax · Ontario charges a tax on the price of a home, rising from 0.5% to 2.5% in brackets, and Toronto adds a second one of its own. A first-time buyer gets a refund of up to $4,000 from Ontario and $4,475 from Toronto.
  • Mortgage default insurance · A buyer putting down less than 20% must buy mortgage default insurance from CMHC or a competitor. The premium is 2.80%, 3.10% or 4.00% of the loan depending on the down payment, is added to the mortgage, and carries 8% Ontario sales tax paid in cash at closing.
  • Rent, and when it stops · Rent is its own line in the plan rather than part of living expenses, and it stops the month your first home closes — because a household that has bought is not paying both. Give it an end date if you would keep renting past that.
  • Renting out part of your home · Suite income is taxable and its expenses are deductible on the rented portion, but renting can also limit the principal-residence exemption on the eventual sale. The planner assumes the rental use stays ancillary, so the whole gain on a sale stays exempt, and says it assumed so.
  • Renting versus buying · The planner compares a plan that buys a home with the same plan that never buys, and whichever side spends less on housing in a month invests the difference at the same return. It shows when owning pulls ahead on net worth, if it does. It is a comparison under assumptions, not a verdict.
  • Stress tests · A stress test reruns the whole plan with one thing made worse, such as a higher mortgage rate at renewal or a year of lost income, and reports how far final net worth moves and whether the plan still pays its bills. It carries no probabilities.
  • What a house costs to hold · Property tax, maintenance, insurance and utilities are estimated as rates against the home's value, with sourced defaults. Property tax then grows with the home while the rest grow with inflation.
  • When the plan runs short of cash · When a month needs more money than the plan has, it draws savings in a set order, then borrows on a home equity line at 5.13% and an unsecured line at 8.38%, as far as a lender would lend. When no lender would lend more, the projection stops.
  • Would a lender write the mortgage? · Lenders test a mortgage against two ratios, GDS at 39% and TDS at 44% of gross income, using a stress-test rate of the contract rate plus 2 points or 5.25%, whichever is higher. The planner runs this screen on the income entered for today.

References

  1. ↑Guide T4036, Rental Income — Part 3 Income / Line 8299 Total gross rental income · Gross rental income is total rents actually earned in the year (line 8141 / 8299); no vacancy-allowance deduction exists · effective 2025-01-01
  2. ↑CRA T4036 Rental Income — co-ownership · A couple's home whose ownership shares are not given is owned 50/50; each co-owner reports their share of rental income and expenses, and every owner's FHSA and Home Buyers' Plan may fund the purchase; reported on the run · 50% · effective 2026-09-25
  3. ↑Guide T4036, Rental Income — Personal portion of total expenses · T4036 rule: split whole-property expenses between personal and rented area by square metres or rooms; expenses relating only to the rented area are 100% deductible · effective 2025-01-01
  4. ↑Guide T4036, Rental Income — Chapter 3 Expenses / Expenses you cannot deduct · T4036 deductible current expenses and explicit non-deductibles · effective 2025-01-01
  5. ↑Guide T4036 Rental Income — Chapter 3 · Fees to obtain a mortgage on a rental property (appraisal, broker, application, mortgage legal, default-insurance premium) are deducted evenly over this many years · 5 years · effective 1972-01-01
  6. ↑Guide T4036, Rental Income — Rental losses / Renting below fair market value · Rental losses deductible against other income if incurred to earn income; barred for cost-sharing arrangements and where no reasonable expectation of profit · effective 2025-01-01
  7. ↑Guide T4036 Rental Income — Chapter 4 · CCA cannot create or increase a rental loss: the claim is capped at net rental income before CCA (Reg. 1100(11)) · effective 1972-01-01
  8. ↑ITA 111(1)(a), 111(8) "non-capital loss"; ITA 3(c)–(f) · Non-capital losses (losses from business and property in excess of the year's s.3(c) income) may be deducted in computing taxable income for the 20 following years (line 25200); income for a year cannot be below nil (ITA 3(f)) · 20 years · effective 2006-01-01
  9. ↑CMHC — Calculating GDS / TDS ("up to 100% of gross rental income from the secondary suite") · Suite gross-rent add-back, 2-unit owner-occupied (insured) · 100% · effective 2023-01-01
  10. ↑CMHC — Rental income · Rental income policy for qualification: 50% of gross rent added to income (an underwriting convention; qual.suite.addback records the 100% owner-occupied 2-unit variant) · 50% · effective 2021-06-01
  11. ↑CMHC Purchase — homeowner loans · Maximum insured loan-to-value for owner-occupied 3–4 unit properties: 90% (1–2 units: 95%) · 90% · effective 2024-12-15