How do you classify mixed repair and improvement work?

You split it: the portion that restores is treated as current and deductible, the portion that improves is capitalized and recovered through CCA.

DeedWorthGuide · Quebec

Deductible Rental Expenses in Canada: Current vs Capital

Q: Is mortgage interest deductible against rental income?

Yes, the interest portion of the payment is a deductible current expense. The principal repayment is not.

Last verified: July 2026

In brief — A current expense (a repair that restores the property) is deducted in full in the year against your rental income. A capital expense (an improvement that betters the property or extends its life) is not deducted at once: it is added to the property's cost and recovered slowly through capital cost allowance (CCA). The rule: if the work restores, it is current; if it improves, it is capital.

How you classify an expense directly changes your tax for the year. Sorting it correctly — current or capital — avoids both overpaying and having a deduction denied. Here is how to decide.

Current expenses: deductible in the year

A current expense is incurred to earn rental income and to keep the property in its condition. It is fully deductible in the year incurred. The main ones:

municipal and school taxes;
building insurance;
mortgage interest (the interest portion, not the principal);
routine maintenance and repairs (plumbing, painting, replacing a broken fixture);
management and concierge, advertising to rent;
utilities paid by the owner, condo fees.

Capital expenses: added to cost, written off

An expense is capital when it improves the property, extends its useful life or adds a capability it did not have. It is not deducted in the year: it is added to the property's capital cost and can be recovered gradually through capital cost allowance (CCA). Typical examples: a major kitchen renovation, a new roof that improves beyond the original condition, an addition, adding appliances.

Important: the mere fact that an expense raises market value is not the deciding factor. What matters is whether it restores (current) or improves/extends (capital).

The question to ask: restore or improve?

Signal	Current (deductible)	Capital (written off)
Nature of the work	Restores to original condition	Improves beyond original
Effect on useful life	Maintains	Extends
Frequency	Recurring	One-off, structural
Examples	Fix a leak, repaint, replace a window	Upgraded new roof, kitchen reno, addition

For large mixed projects, you often must split: the plain-repair portion is current, the improvement portion is capitalized.

Why the classification changes your tax

A current expense reduces your taxable income this year — immediate relief.
A capitalized expense gives no immediate deduction, but feeds CCA and raises the adjusted cost base, which reduces the capital gain at sale.
Rental losses (excluding CCA) are deductible against your other income the same year — but CCA cannot create a loss.

Build it into your analysis

DeedWorth builds operating expenses and taxation into the after-tax return and the 10-year projection, so the current/capital classification shows up in your decision. Analyze a property with DeedWorth →

FAQ

Is a repair deductible in the year? Yes, if it is a current expense that restores the property to its original condition (fix a leak, repaint, replace a broken fixture), it is fully deductible in the year incurred.

Is a new roof deductible? Usually not in the year: if it improves the property beyond its original condition, it is a capital expense, added to cost and recovered through CCA. A plain partial repair, however, is current.

Is mortgage interest deductible? Yes, the interest portion of the payment is a deductible current expense. The principal repayment is not.

How do you classify mixed work? You split it: the portion that restores is treated as current (deductible), the portion that improves is capitalized.

For information only, not personalized tax advice. Rules change; confirm the classification of your expenses with an accountant. Last verified: July 2026.