Is a rental loss deductible against other income?

Yes, excluding depreciation: a rental loss is deductible against your other income the same year. Capital cost allowance cannot create or increase a loss.

DeedWorthGuide · Quebec

Rental Income Tax in Canada: How It's Reported

Last verified: July 2026

In brief — Rental income is taxed at your marginal rate, on the net income: rent collected minus deductible expenses. Federally, you report it on Form T776; in Quebec, you also file the TP-128. A rental loss (excluding depreciation) is deductible against your other income the same year.

Many investors think in cash flow and forget the tax on rental income — until filing time. Yet that is what separates the advertised yield from what you keep. Here is how it is computed and reported.

How rental income is taxed

Rental income is not taxed on gross rent, but on net income:

Net income = rent collected − deductible expenses

This net income is added to your other income (salary, investments) and taxed at your marginal rate. There is no "special" rate for rentals: it is ordinary income.

Where to report it: T776 and TP-128

Federal: Form T776 — Statement of Real Estate Rentals computes your net rental income (or loss).
Quebec: residents also file the TP-128 — Income and Expenses Respecting the Rental of Immovable Property.

If the property is co-owned, each co-owner reports their share of the net income, based on their ownership percentage.

The rental loss: a lever

If your deductible expenses exceed your rent, you have a rental loss. Excluding depreciation, that loss is deductible against your other income for the year (salary, investments), reducing your overall tax. It is common on a highly leveraged property early on.

Note: capital cost allowance (CCA) cannot create or increase a rental loss — it can only bring net income to zero. That is a separate rule, detailed in the CCA recapture guide.

Rental income vs capital gain: don't confuse them

Rental income is taxed every year on net income, at 100%.
A capital gain only appears at sale, on the appreciation, at a 50% inclusion rate. See the capital gains on a rental property guide.

Two distinct taxes, at two different times.

Good practices

Keep your records (income and expenses): at least six years.
Split your expenses correctly between current and capital (see the dedicated guide) — that is where reassessments happen.
Anticipate the tax in your return calculation: pre-tax cash flow misleads.

Build it into your decision

DeedWorth computes the tax on rental income at your marginal rate, applies the loss restriction, and projects the after-tax return over 10 years — not just gross cash flow. Analyze a property with DeedWorth →

FAQ

How is rental income taxed in Canada? On net income (rent minus deductible expenses), added to your other income and taxed at your marginal rate. There is no special rate.

Which forms report rental income? Federally, the T776 (Statement of Real Estate Rentals); in Quebec, also the TP-128. Each co-owner reports their share.

Is a rental loss deductible? Yes, excluding depreciation: a rental loss is deductible against your other income the same year. CCA, however, cannot create a loss.

Are rental income and capital gain the same? No. Rental income is taxed every year on net income at 100%; a capital gain only appears at sale, at a 50% inclusion rate.

For information only, not personalized tax advice. Confirm your return with an accountant. Last verified: July 2026.