Decide who will own the property before you make an offer
The person who owns a rental property reports its income or loss. If you buy with others, the CRA generally treats you as co-owners, including when the co-owner is your spouse or common-law partner. Each owner reports a share based on ownership percentage, and the percentage should stay the same from year to year unless ownership changes. Co-owning a property as an investment does not by itself create a partnership.
Ownership is hard to change later. Moving land into a corporation, or from one person to another, can bring land transfer tax and income tax questions of its own. Land transfer tax on a transfer to a corporation can be based on the property’s fair market value, for example when shares of the corporation are issued. Interest follows the legal owner too: the CRA says only the owner can use the mortgage interest to calculate rental income, even if someone else guaranteed the loan. Before you sign, ask your accountant who should hold title and who should be on the mortgage.
Add up the purchase costs and the land transfer tax
Ontario land transfer tax applies when you buy land in Ontario, which includes buildings. It is normally based on the amount you pay plus any mortgage or debt you assume, and it is payable when the transfer is registered. Ontario also lists a 25% Non-Resident Speculation Tax that can apply when a buyer is a foreign national or foreign corporation. A land transfer tax refund for first-time homebuyers also exists; check its conditions before counting on it for an investment purchase.
For income tax, the CRA treats the purchase price and legal fees and other costs connected with buying as capital expenses. They are added to the cost of the property instead of being deducted from rent in the first year. Keep the closing statement, the lawyer’s statement of adjustments and the agreement of purchase and sale, and ask your lawyer how the price was split between land and building. That split matters for capital cost allowance later, which our guide on rental income and what you can claim explains.
Understand how GST/HST treats the rent
Long-term residential rent is generally exempt from GST/HST. The CRA’s policy says a rental is exempt when the unit is used as a place of residence and the same individual occupies it continuously for one month or more. A landlord of exempt residential rent does not charge HST to the tenant. That is different from short-term accommodation of less than one month, which is taxable when provided by a registrant. If you plan to use short-term rentals, read our article on GST/HST for short-term rentals first.
If you buy or build a new or substantially renovated home to lease to individuals as their long-term home, the CRA points you to a separate new residential rental property rebate rather than the new housing rebate (see CRA guide RC4231). Resale homes in Ontario do not carry HST on the purchase. Separate optional charges, such as cable billed on its own, can be taxable even when the rent is exempt.
Set up records and accounts on day one
The CRA expects invoices, receipts, contracts and other supporting documents for rental income and expenses, and says you generally keep them for six years from the end of the tax year they relate to. Open a separate bank account for rent and property costs so that income, mortgage interest, property tax, insurance and repairs are not mixed with personal spending.
Label what you spend before the first tenant moves in. Repairs that keep the property in its original condition are current expenses, while costs that improve it or extend its life are usually capital. Describe the work on each invoice. If you rent part of your own home, the CRA says you cannot claim those expenses without a reasonable expectation of profit, so keep a record of how you split the costs between personal and rental space.
Check the holding period and other rules that can change the tax
The residential property flipping rule treats profit from selling a housing unit owned for less than 365 consecutive days as business income. That means it does not get the 50% capital gains inclusion rate or the principal residence exemption, with exceptions for certain life events such as death, a marriage breakdown or an involuntary job loss. If you may sell soon, speak to your accountant before you buy.
The underused housing tax is no longer a filing concern for new owners: the CRA says affected owners do not need to file or pay it for 2025 and later years, though returns for 2022 to 2024 are still required. If you ever move into the property or move out of your own home to rent it, the change in use can be treated as a sale. Our guide on selling your home covers principal residence reporting.
Prepare for the first filing
Rental income and expenses are reported on Form T776 with your personal return. The CRA says rental properties have a December 31 year-end, so a purchase in June means a first return that covers June to December. If the rental produces enough income that your net tax owing could exceed $3,000, ask about instalments rather than waiting for a bill in April.
At your first meeting, bring the closing documents, the mortgage and lease, your ownership agreement if any, a list of costs before the first tenant and your estimate of annual rent.
Your conversation checklist
- Agreed ownership structure and percentages for every owner
- Mortgage documents showing which owner is on the loan
- Agreement of purchase and sale and lawyer’s closing statement
- Land transfer tax receipt and legal fee invoice
- Land and building split from the closing documents
- Lease and a record of rent and deposits for each tenant
- Whether rent is long-term or short-term, for GST/HST
- Separate bank account for rental income and expenses
- Invoices for repairs and improvements, describing the work
- Date of purchase, to track the 365-day holding period
Further reading & sources
- CRA: Rental Income guide T4036
- Ontario: Land transfer tax
- CRA: Residential real property rentals (GST/HST Memorandum 19-2-2)
- CRA: GST/HST new residential rental property rebate (RC4231)
- CRA: Residential Property Flipping Rule
Tax rules and administrative requirements can change. Check the applicable official guidance and confirm your circumstances with a qualified adviser. This guide is not an assessment of your filing, payment or legal obligations.