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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 and IT-434RSR - Rental of Real Property by Individual (both archived).
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.
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?
New: For a partnership carrying on a rental business, it is likely that an Underused Housing Tax return must be filed each year, with the first return due on May 1, 2023.
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.
Real Estate Rentals - all topics
Canada Revenue Agency (CRA) ResourcesRental income or business income?
T4002 Business and Professional Income Guide, with links to the forms required to be filed with the personal income tax return.
Tax Tip: If you plan to pursue property rental, know the tax rules, and get professional advice!
Revised: October 26, 2023
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