Rental, Business, and Investment Income: CRA Reporting Guide

Income earned from rental properties, business activities, and investments forms a significant part of many Canadians’ finances. Properly reporting this income to the Canada Revenue Agency (CRA) is crucial for compliance, avoiding penalties, and optimizing your tax position. This detailed guide explains how to report various types of income, allowable deductions, and key filing considerations.

1. Rental Income Reporting

If you own property and earn rental income, you must report the gross rental income and claim related expenses on your tax return using Form T776 – Statement of Real Estate Rentals.

1.1 What to Report

• Total rent received or receivable
• Income from services provided to tenants (parking fees, laundry)

1.2 Deductible Expenses

You can deduct expenses incurred to earn rental income, including:

• Mortgage interest (principal payments are not deductible)
• Property taxes
• Insurance premiums
• Maintenance and repairs
• Utilities paid by you
• Advertising for tenants
• Management and administration fees

1.3 Capital Cost Allowance (CCA)

You may claim CCA (depreciation) on the building and eligible improvements. However, claiming CCA reduces your adjusted cost base and may trigger recapture or capital gains when you sell.

2. Business Income Reporting

If you operate a business as a sole proprietor, partnership, or corporation, income must be reported differently depending on the structure.

2.1 Sole Proprietorship and Partnership

Use Form T2125 – Statement of Business or Professional Activities to report business income and expenses on your T1 personal tax return.

2.2 Business Income Includes

• Sales and services revenue
• Barter or trade income
• Commission and fees

2.3 Deductible Business Expenses

• Office supplies and utilities
• Advertising and promotion
• Vehicle expenses (pro-rated for business use)
• Wages and salaries paid to employees
• Capital cost allowance on business assets

2.4 Corporations

Corporations file a separate corporate tax return (T2). Shareholder dividends and salary are reported on personal returns.

3. Investment Income Reporting

Investment income includes interest, dividends, capital gains, and other income from your portfolio. Reporting depends on the type of income.

3.1 Interest Income

Report interest earned on bank accounts, bonds, and loans on your T1 as taxable income. You will typically receive a T5 slip reporting this income.

3.2 Dividend Income

Dividends from Canadian corporations receive favorable gross-up and dividend tax credit treatment. Report amounts shown on T5 slips.

3.3 Capital Gains and Losses

When you sell an investment, you realize a capital gain or loss. Report on Schedule 3 – Capital Gains (or Losses). Only 50% of capital gains are taxable.

3.4 Other Investment Income

Includes income from trusts, mutual funds, and other sources reported on T3 slips.

4. Filing Deadlines and Payment

Personal tax returns reporting rental, business, or investment income must generally be filed by April 30. Self-employed individuals and their spouses have until June 15, but taxes owed remain due April 30 to avoid interest.

5. Record Keeping

Keep all records related to income and expenses for at least six years, including:

• Receipts and invoices
• Bank and investment statements
• Contracts and leases
• Tax slips (T5, T3, T4A, etc.)

6. Common Pitfalls to Avoid

• Failing to report all sources of income
• Claiming personal expenses as business or rental expenses
• Neglecting to report capital gains or losses
• Missing filing deadlines and incurring penalties

7. When to Get Professional Help

Consider consulting a tax professional if you have:

• Multiple rental properties or complex business activities
• Significant capital gains or losses
• Cross-border or foreign investment income
• GST/HST registration and remittance requirements