How Does the CRA Track Rental Income for Tax Purposes?

Rental income refers to the money earned by individuals from renting out their properties to tenants.

It is an important source of additional income for many individuals and must be reported to the Canada Revenue Agency (CRA) for tax purposes. 

The CRA has specific guidelines and procedures in place to ensure that rental income is accurately reported and taxed.

How is Rental Income Defined by CRA?

The CRA defines rental income as the money or value received for renting out a property that you own.

This includes income from houses, apartments, condominiums, and other properties.

The CRA requires you to report rental income on your tax returns.

This applies to renting out a portion of your home or an entire property.

Even if you rent out your property for a short time, such as through Airbnb, it is still considered rental income and must be reported.

Not reporting rental income can have serious consequences.

Accurately reporting all rental income is important to comply with tax laws.

Keeping detailed records, consulting a tax professional, and staying updated on tax laws are important for reporting rental income accurately.

How Does CRA Know About Rental Income?

The CRA obtains information about rental income through various methods, including:

  • Many provinces have rent credits for tenants, which require the tenant to provide details of the property they are renting and the landlord. In Ontario for example this is done through Ontario Energy and Property Tax Credit (OEPTC). In Quebec it is done through the Solidarity Tax Credit.
  • If you own multiple properties and therefore have multiple property tax rolls under the same name, the CRA may request you to provide details relating to the use of each property.
  • Abnormalities like very low income but owning multiple properties will get flagged
  • In some cases, individuals may receive rental statements from property management companies or rental platforms, which are reported to the CRA as income, so they are aware there are matching landlords on each of these properties.
  • The CRA conducts random audits or targeted audits throughout the year.
  • The CRA may exchange information with other government agencies, such as land registry offices or municipal authorities, to track rental income and ensure compliance.

Tips for Reporting Rental Income Accurately

Keep Detailed Records

Keeping detailed records is crucial for reporting rental income to the CRA.

It ensures accurate reporting and can be useful in audits or discrepancies.

  • Track rental income: Keep detailed records of all income, including rent payments, security deposits, and additional fees. This helps ensure accurate reporting of rental earnings to the CRA.
  • Document expenses: It is important to keep detailed records of expenses such as mortgage payments breaking out the interest portion, property taxes, insurance, repairs, and maintenance costs. This will help in calculating net rental income and deductible expenses accurately.
  • Retain receipts and invoices: Make sure to keep copies of receipts, invoices, and bills for repairs, renovations, property management fees, and other costs.
  • Preserve capital expense documentation: It is crucial to maintain records of significant improvements or renovations as they may be eligible for capital cost allowance (CCA) deductions, which can effectively reduce taxable rental income.
  • Manage tenant information: Keeping detailed records of tenants’ names, contact details, lease agreements, and correspondence is essential. This will help in tracking rental periods, rent increases, and resolving any tenant-related issues.
  • Keep financial records: Retain bank statements, financial records, and any documents showing rental income deposits and related expenses. These provide further evidence of rental income and expenses.

Consult a Tax Professional

When it comes to reporting rental income, it is always a wise choice to consult with a tax professional.

By doing so, you can benefit from their extensive knowledge of the specific tax laws and regulations pertaining to rental income.

Not only can they offer guidance on ensuring compliance with the CRA but they can also provide advice on deductions, credits, and any recent changes in tax laws.

Guy filling tax forms related to his rental properties

Frequently Asked Questions

  • How does the Canada Revenue Agency (CRA) know about rental income?
  • What is the financial impact of not reporting rental income to the CRA?
  • Failing to report rental income to the CRA can have serious financial consequences. It is considered tax evasion and can result in penalties, fines, and potential criminal charges.

  • What are the reporting requirements for rental property income according to the CRA?
  • The CRA requires individuals to report rental income on their income tax returns using Form T776, which classifies the income as either rental property income or business income. The duration of the rental and the type of property do not exempt the rental payments from being claimed on income tax returns.

  • Can rental losses be deducted from other sources of income?
  • Yes, if you experience rental losses, you can deduct them against your other sources of income. The rental activity must be conducted with a reasonable expectation of profit and at fair market value. It is important to keep documentation and evidence of the losses in case of an audit by the CRA.

  • What expenses can be deducted from rental income when reporting to the CRA?
  • When reporting rental income to the CRA, you can deduct various expenses related to your rental property. These may include operating expenses such as repairs, maintenance, and utilities, as well as capital expenditures like renovations that can be depreciated over time. Certain expenses such as personal services and mortgage payments (except for interest) are not deductible.

  • Should I hire a professional accountant to help with reporting rental income to the CRA?
  • Yes, seeking professional assistance can be beneficial in ensuring proper compliance with CRA guidelines and maximizing tax benefits. A professional accountant can provide financial guidance, help you navigate complex tax laws, and ensure accurate reporting of rental income and expenses.

Tara Al-Khudairi

Tara Al-Khudairihas worked in the financial services industry since 2017. She graduated from McMaster University with a degree in Finance and is pursuing her CFA.

She has worked at a major Canadian financial institution in various client-facing advisory roles, starting as a bank teller and working up to a Client Services Associate within the Asset Management division. She specializes in simplifying concepts of personal finance for people of various financial backgrounds.

When she’s not examining the markets looking for the next SHOP.TO, she’s either practicing yoga, planning her next vacation, or has her nose buried deep in a book.