What to take away
- Rent from a basement suite is taxable, and CRA’s rental guide has you split costs that relate to the whole property between your personal part and the rented area.
- Structural changes, claiming capital cost allowance or rental use that is more than minor can turn a partial rental into a partial change of use of your principal residence.
- Long-term residential rent of a month or more is generally exempt from GST/HST, which means you do not charge it and generally cannot claim input tax credits on related costs.
Rent is taxable income, and you report it
Rent you collect from a tenant in your basement is income whether the arrangement is formal or informal. Rental income and expenses are generally reported on Form T776, Statement of Real Estate Rentals, which is filed with your personal return. The guide for rental income is the place to start for the detail, and the guide on what you can claim on a rental walks through the expense categories.
Basic services such as heat, light, parking and laundry generally point to rental income from property. If you provide additional services to tenants, such as cleaning, security or meals, CRA says you may be carrying on a business instead, with different reporting. A typical long-term basement tenancy is on the property side, but tell your accountant about any extra services.
Splitting expenses between your home and the suite
CRA’s guidance is that you divide the expenses that relate to the whole property between your personal part and the rented area. Costs that belong only to the suite can generally be claimed in full for that part. Shared costs, such as property tax, home insurance, heat, electricity, mortgage interest and general repairs, are allocated. Rooms you share with the tenant, such as a laundry room, can be claimed in part, based on factors like availability or the number of people sharing them.
The guide does not prescribe one method, so use a reasonable basis you can explain, and keep using it. Floor area is a common starting point. For example, if the suite is 700 square feet in a 2,000 square foot house, the rented share would be 35 percent, and that share of a $4,000 annual property tax bill would be $1,400. These are illustrative numbers. The point is to write the calculation down in the year you start.
Repairs, upgrades and capital costs
Repairs that maintain the suite, such as fixing a leaking tap or repainting between tenants, are generally current expenses in the year you pay them. Finishing a basement, adding a separate bathroom or other improvements that go beyond maintenance are usually capital costs, which are added to the property’s cost rather than deducted at once. CRA’s current-versus-capital guidance looks at whether the work gives a lasting benefit and improves the property beyond its original condition.
Mortgage principal repayments and the value of your own labour are not deductible. Interest on money borrowed for personal purposes is not deductible either, so keep track of what a refinancing was used for if you borrowed to fund the suite.
The profit test and renting below market
Expenses for renting part of your property are not claimable if you cannot reasonably expect the rental to make a profit, according to CRA. A rental loss may also be refused when your expenses are consistently higher than your rent. Capital cost allowance cannot be used to create or increase a rental loss.
The issue arises most often with family. If a parent, adult child or friend pays a token amount, CRA treats a cost-sharing arrangement as outside rental income, and rental losses are not allowed. If you charge a relative less than you would charge a stranger, CRA says you cannot claim a rental loss. Keep a lease and rent records even for a relative, and discuss how the arrangement should be treated before you file.
How a suite can affect your principal residence exemption
This is the part owners most often overlook. When you use part of your home to earn rent, CRA generally considers that you have changed the use of that part, which can be treated as a deemed sale of that portion at fair market value. CRA lists three conditions that must all be met to avoid that result: the income-producing use is ancillary to the main use of the property as your home, there is no structural change to the property, and no capital cost allowance is claimed on it.
That is why many owners choose not to claim CCA on a basement suite, though the right answer depends on how much tax relief you would get now against the exposure later. If the conditions are not met, part of the gain on a future sale may be taxable, and the sale price and cost are split between personal and rental portions. You can also make an election under subsection 45(2) or 45(3) of the Income Tax Act for a partial change of use. The articles on selling a rental property and on selling your home explain the sale side.
GST/HST on residential rent
CRA’s memorandum on residential rentals treats a rental of a residential unit as exempt when it is used by an individual as a place of residence and the period of continuous occupancy by the same person is one month or more. That covers an ordinary long-term basement tenancy. Exempt means you do not charge GST/HST on the rent, and you also generally cannot claim input tax credits on the costs of providing it.
Short stays are different. If the occupancy is less than one month, the supply is generally taxable if provided by a registrant, unless the charge is $20 or less per day. If you move a basement suite to nightly or weekly bookings, read the article on GST/HST for short-term rentals first, because registration and income tax treatment can both change.
Records and filing habits that help
Keep the lease, a record of every rent payment, invoices for repairs and utilities, the property tax and insurance bills, mortgage statements showing interest separately from principal, and the written calculation of your rental percentage. Record the date the suite first became available to rent, and the home’s approximate value around then, because that date may matter when you sell.
If rent is paid in cash, deposit it and note it, so the records agree with what you report. CRA expects reasonable records for any rental, and an unexplained deposit pattern is a common reason for questions.
Questions to take to your accountant
Ask four things. Should you claim CCA on the suite, given its effect on your principal residence? Is the rented share you calculated reasonable? Does a relative’s arrangement count as rental income or cost-sharing? And do any structural changes you have made or plan to make affect how your home is treated?
The rental expense checklist can help you collect records before you meet. Sora’s personal tax service covers rental reporting, and you can describe your situation through the contact form without sending tax identifiers or banking details.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- T4036 Rental IncomeCanada Revenue Agency
- Rental expenses you can deductCanada Revenue Agency
- Principal residenceCanada Revenue Agency
- Residential Real Property—Rentals (GST/HST Memorandum 19-2-2)Canada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.