Benefits of owning investment Property in Canada

June 5, 2025 | Posted by: Sarabjit Dhuna

Owning investment property in Canada comes with several tax benefits that can help reduce your taxable income and increase your overall return on investment. Here are the main tax advantages:

1. Deductible Expenses

You can deduct many expenses related to operating and maintaining your rental property, including:

Mortgage interest
Property taxes
Insurance premiums
Property management fees
Repairs and maintenance
Utilities (if paid by you)
Advertising costs (to find tenants)
Office expenses (if you manage the property yourself)

These deductions reduce your net rental income, lowering your taxable income.

2. Capital Cost Allowance (CCA)

You can claim depreciation on the building portion (not the land) of the property under Class 1 (4% declining balance) in most cases.

This is called the Capital Cost Allowance (CCA).
It can defer taxes by reducing your taxable rental income.
But: Claiming CCA can trigger 'recapture' when you sell — any previously claimed CCA is added back to your income if the property is sold for more than its depreciated value.

3. Capital Gains Treatment on Sale

When you sell the investment property:

Only 50% of the capital gain is taxable.
You can also deduct costs associated with the sale (e.g., legal fees, real estate commissions) to reduce the gain.
You may also be able to defer capital gains using strategies like a Section 85 rollover or refinancing instead of selling.

4. Loss Carryforward or Carryback

If your rental property operates at a loss:

You can use that loss to offset other income in the same year.
If your rental loss exceeds your income, you may carry it forward or backward to reduce taxable income in other years.

5. GST/HST Rebates (for new rental units)

If you buy or build a new residential rental property, you may be eligible for a partial GST/HST rebate.

Applies mostly to newly built or substantially renovated properties.
You may also need to self-assess GST/HST on fair market value upon first rental.

6. Incorporation and Tax Planning

Some investors hold properties through a corporation, which can:

Allow for income splitting
Potentially access lower small business tax rates
Offer liability protection
Provide tax deferral opportunities by leaving profits in the company

This requires careful planning, as it introduces legal and accounting complexity.

Key Caveats:

The Principal Residence Exemption does not apply to investment properties.
Tax rules can be complex if you live in part of the property, use it short-term (e.g., Airbnb), or convert between personal and rental use.
Always consult a Canadian tax professional or accountant for personalized advice.

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