What expenses can you deduct for a second property in Canada?

The types of expenses you can deduct for a second property

There are several expenses that can be deducted from a second property, particularly if it is designated as an investment property, meaning its purpose is to generate income for you.

Expenses such as interest costs, utilities, property tax, repairs and renovations can be deducted, according to the Canada Revenue Agency (CRA). Some expenses, called current expenses, are only deductible in the year you incur them. And others, known as capital expenses, are deductible in future years.

Current vs. capital expenses

Current expenses are costs that you incur to maintain the property, such as minor repairs and maintenance, as well as interest, property taxes, professional fees (legal, accounting, bookkeeping, property management and auditing), advertising, and so on.

Capital expenses are those that either improve the property’s market value, extend its duration or adapt it to a totally different use. For example, renovation costs. A capital expense will need to be divided in very specific ways and applied over a few tax years as capital cost allowance (CCA). 

You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from $0 to the maximum allowed for the year. If you do not have to pay income tax for the year, then you may not want to claim CCA.

The one cost you cannot deduct from your gross rental income is the cost of purchasing the property. You can, however, add it to the cost of your purchase to be deducted when you sell your property. This will impact how any capital gains or losses are calculated and taxed on the sale of your second property. 

Claiming a rental loss

Another thing to note is that all these deductions are based on the assumption that you are generating income, or at least attempting to generate income from the property. It is possible to claim a rental loss if your expenses exceed your rental income. This rental loss can be claimed against other sources of income. Be sure to verify the expenses are properly classified, calculated and provable.

When there is no rental income, it is still possible to deduct the costs of maintaining the property, but keep in mind that the property must be vacant and available on the market to be rented.