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Real Estate -> Is Rental Income Property Income or Business Income?

Rental Income - Property Income or Business Income for Tax Purposes?

In general, the number and kinds of service provided in relation to the rental of the property will determine whether the income is property or business income.  The more services that are provided, the more likely that the income will be considered business income.  The number of rental properties being managed will not affect the classification of the income.  For more detailed information, see the Canada Revenue Agency (CRA) Interpretation Bulletin IT-434R Rental of Real Property by Individual (Archived), and see the

Why does it matter?

Property income and business income are treated differently for tax purposes.  The following are some of the differences in taxation of individuals.

Business Income

bullet is reported on lines 13500 to 14300 (line 135 to 143 prior to 2019) of the tax return, as part of self-employment income.  The forms to be completed can be found in the link below to guide T4002.
bullet is subject to Canada Pension Plan (CPP) premiums on net income.
bullet is included in working income for purposes of the Canada Workers Benefit (CWB) - prior to 2019 this was the Working Income Tax Benefit (WITB).
bullet is included in self-employment income for calculation of the refundable medical expense supplement.
bullet is included in earned income for purposes of calculating the child care expense deduction.
bullet self-employed person can choose a year-end after December 31st to defer tax on the first fiscal year, but make sure this is what you want to do.
bullet personal income tax return filing due date for the individual (other than a business whose expenditures are primarily in connection with a tax shelter) and their spouse is June 15th, but taxes are still payable by April 30th

Property Income

bullet from real estate rentals is reported on Form T776, and on line 12600 rental income (line 126 prior to 2019) of the tax return.
bullet is not subject to CPP premiums.
bullet is not included in working income for the Canada Workers Benefit (CWB).
bullet is not included in self-employment income for calculation of the refundable medical expense supplement.
bullet is not included in earned income for purposes of calculating the child care expense deduction.
bullet all rental income from property is reported on a calendar year basis.
bullet personal income tax return filing due date is April 30th.

To input rental income in the Canadian Tax and RRSP Savings Calculator, include rental income from business as self-employment income, and rental income from property as "other income".

Rental Income Received by a Partnership

The tax treatment for each type of rental income is the same for an individual or a partnership.  If you're not sure if you have a partnership, see Income Tax Folio S4-F16-C1, What is a Partnership?

Rental Income Received by a Corporation

When rental income is received by a corporation, the income is usually considered investment (property) income, and is not considered active business for purposes of the small business deduction.  A corporation whose principal purpose is to derive income from property is usually considered a specified investment business, and is not eligible for the small business deduction.

TaxTips.ca Resources

Real Estate Rentals - all topics

Personal Income Tax Return Due Date

Canada Revenue Agency (CRA) Resources

Do you have rental income or business income?

IT-434R Rental of Real Property by Individual (Archived)

IT-434RSR Rental of Real Property by Individual (Archived)

T4036 Rental Income Guide

Form T776 Statement of Real Estate Rentals

T4002 Business and Professional Income Guide, with links to the forms required to be filed with the personal income tax return.

IT-364 Commencement of Business Operations

Filing Due Dates - see Important dates for Individuals

Tax Tip:  If you plan to pursue property rental, know the tax rules, and get professional advice!

Revised: November 19, 2021

 

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