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Real estate accounting comes down to three habits: keep the property’s money apart from your own, sort every cost into current or capital, and keep the paper for six years. Get those right and the tax return is mostly arithmetic. Get them wrong and you’ll pay tax on money you never kept.
This page is for people who own rentals or run a small real estate business in Canada. It isn’t about brokers or property managers working for clients, and it leaves out GST and HST on property sales, which are a separate topic.
What does real estate accounting need to track?
The CRA asks you to report gross rents, rental expenses and capital cost allowance (CCA) on Form T776, and says other statements are accepted too. So the books need to give you three totals at year end, and nothing fancier.
Do you need a separate bank account for each property? The CRA doesn’t say you must, but it’s the cheapest accounting system there is. Every rent deposit and every bill goes through it, so the statement itself becomes your ledger. If you own one duplex, a single account just for the rental is plenty. With three or four doors, one account per property saves you from untangling who paid for what.
The CRA says to keep records for six years from the end of the tax year they relate to, and that it may refuse expenses you can’t support with receipts. Don’t mail them in with the return. Hold them.
Current or capital costs, where the money gets decided
| Type | CRA description | Tax treatment |
|---|---|---|
| Current expense | Recurring, short-term benefit, such as repairs that keep the place as it was | Deduct in the year you pay it |
| Capital expense | Lasts several years, such as buying or improving the property | Generally deducted over time as CCA |
A repainted suite is current. A new addition is capital. The CRA’s page on current and capital rental expenses gives plain examples: painting the exterior is current, putting vinyl siding on is capital, and buying a refrigerator for a unit is capital because it’s a separate asset. The grey area in between, like replacing a whole roof, is where people guess, and the CRA’s rental income guide is the place to settle it.
Does it really matter? It does, in dollars. Take an Ontario landlord with $80,000 of other income, $30,000 of rent and $14,000 of expenses. The rental income tax calculator puts the extra tax at about $4,744. If $4,000 of those costs had to be treated as capital instead, the net income rises to $20,000 and the extra tax to about $5,959, or roughly $1,215 more this year. You’d get some of it back through CCA later, but slowly.
Why mortgage payments are not all an expense
This catches new landlords every time. Consider a $600,000 property with $150,000 down, a 4.5% mortgage and 25 years to pay. The rental property calculator puts the loan payments at about $29,888 a year.
In the first year roughly $10,028 of that pays down the principal. The other $19,860 or so is interest. Only the interest goes in the expense column. The principal is your own equity growing, and it’s no tax deduction.
That’s why a property can look profitable on paper and still drain your bank account. With $3,000 monthly rent and ordinary costs, the same example has a net operating income of $25,800 and a cash flow of about minus $4,088. The cap rate calculator shows the 4.3% yield on price that gets there. Your accounts need to show both the tax picture and the cash picture, since they tell different stories.
What should you record each month?
Fifteen minutes is enough if you do it on schedule. Log the rent received, by unit and by date. Add each bill with its receipt, marked current or capital. Note the mortgage payment split into interest and principal, which your lender’s statement shows. Then compare the bank balance with your list.
That last step finds the mistakes while they’re a few bucks, not a few thousand. A tenant who paid half a month and promised the rest is one example. A contractor who billed twice is another.
Should the property sit in a company?
Sometimes, but not as a default. A corporation adds its own return, its own bookkeeping and its own bills, and there’s a real chance that the savings will be smaller than the extra work. This page doesn’t quote a current rate on rental income inside a corporation. The corporate tax calculator gives a starting estimate for ordinary business income, which isn’t the same thing.
Flips are another matter. Whether a sale counts as business income or a capital gain changes the tax, and that line depends on the facts of each purchase. If you’re buying to resell, ask an accountant before the first purchase. The house flipping calculator tests the deal itself.
Does the 365 day flipping rule apply to you?
If you sell a housing unit in Canada, including a rental, after owning it less than 365 consecutive days, the CRA treats the gain as business income and not as a capital gain. A business loss on a flipped property is treated as nil. There are exceptions, including a property that was already inventory and certain life events such as a death, a separation, a serious illness, a job loss or insolvency. The CRA’s page lists them.
Here is the difference in numbers. Say an owner buys at $500,000 and sells for $590,000 after 300 days, ignoring costs. The gain is $90,000. As a capital gain with a 50% inclusion rate, $45,000 is taxable. As flipped business income, all $90,000 is taxable, which is $45,000 more taxable income. If the property is held longer, the answer depends on the facts. Test a deal with our house flipping calculator before you buy, and read our page on setting up accounting for a new business if you plan to do this repeatedly.
Mistakes that cost landlords money
Mixing personal and property spending tops the list. One grocery run on the rental account and you’ve created an hour of cleanup.
The next is skipping the capital side. You can claim CCA on a rental building, but it has consequences when you sell, so think about it with your accountant rather than ticking it by reflex.
And there’s bad timing: collecting your receipts in April. Do it monthly. Fifteen minutes a month beats a weekend at tax time.
Where this information comes from
The form, record keeping and expense rules come from the CRA rental income guidance, including its pages on current and capital expenses and on where to keep your records. The 365 day rule comes from the CRA page on principal residence and other real estate. We read them in November 2026. Dollar examples come from our own calculators with 2026 tax data. This is an independent site with no link to the CRA.
Frequently asked questions
What form do I use to report rental income?
The CRA encourages Form T776, Statement of Real Estate Rentals, which covers gross rents, expenses and capital cost allowance. Other statements are accepted if they show the same information. Keep the supporting records for six years from the end of the tax year, and do not mail them in with the return.
How long do I keep rental records?
Generally six years from the end of the last tax year they relate to. The CRA may refuse expenses you cannot support with receipts. Some property records, such as those for buying or improving a building, should be kept much longer because they decide your capital cost allowance and your gain when you sell.
Is mortgage principal a rental expense?
No. The CRA says you cannot deduct principal repayments on a rental property mortgage. Only the interest part is an expense. In a $600,000 example with $150,000 down at 4.5% over 25 years, roughly $10,028 of the first year’s payments is principal and $19,860 is interest, so only the interest goes in the expense column.
What is the difference between a repair and an improvement?
A repair that keeps the property as it was is a current expense you deduct in the year you pay it. A cost with a benefit lasting several years is a capital expense, deducted over time as capital cost allowance. Painting the exterior is current, adding vinyl siding or buying a refrigerator for a unit is capital.
What happens if I sell a rental within a year?
If you owned the housing unit less than 365 consecutive days, the CRA treats the gain as business income, not a capital gain, unless an exception applies such as a death, separation, serious illness, job loss or insolvency. A business loss on a flipped property is treated as nil. Ask an accountant before the purchase.
All property and estate tax calculators
- Property and tax in Canada: buying, owning and selling
How property tax and transfer tax apply when you buy, own, rent out or sell a home in Canada, with the calculators for each step