Earning rental income in British Columbia is a smart way to build wealth. Whether you own a secondary property in New Westminster or a basement suite in Surrey, your rental is considered a business by the Canada Revenue Agency. However, many homeowners find CRA compliance confusing.
At Phoenix Knight Financial Services, we believe proactive tax planning is the key to long-term profitability. With over 20 years of experience, Robin DeRidder helps BC homeowners navigate rental property tax, landlord compliance, and estate planning strategies. This guide covers everything you need to know about rental income tax in BC for 2026.
Do You Have to Pay Tax on Rental Income in BC?
Yes. The Canada Revenue Agency (CRA) treats rental income as personal income unless the property is held within a corporation. You must report all income generated from:
- Basement suites and laneway houses in BC.
- Secondary rental properties (condos, townhomes, detached houses).
- Short-term rentals (Airbnb or VRBO).
Failing to report this income can lead to heavy penalties. If you haven’t filed for past years, our late tax filing solutions can help you get back on track without the stress of an audit.
How to Report Rental Income to the CRA (T776 Explained)
Rental income is reported using Form T776 – Statement of Real Estate Rentals.
This form is filed with your personal T1 Income Tax Return.
On Form T776, you report:
- Gross rental income
- Advertising costs
- Insurance
- Property taxes
- Mortgage interest
- Repairs and maintenance
- Capital Cost Allowance (CCA)
Failure to properly complete Form T776 is one of the most common audit triggers for landlords in BC.
How is Rental Income Taxed in Canada and BC?
Rental income is considered passive (unearned) income and is added to your other earnings, such as salary or business income.
This means:
100% of your net rental profit is taxed at your marginal tax rate.
Example:
If you earn $140,000 in employment income and generate $35,000 in net rental income, your rental profit is taxed at your top marginal bracket (approximately 43–47% in BC, depending onthe year).
That could mean:
- $15,000+ in tax on $35,000 of rental profit before planning strategies.
Tax Rates for Rental Income in BC
As an individual landlord, your tax rate depends on your total income from all sources. Because rental income is “top-slice” income, it is taxed at your highest marginal rate.
- The Marginal Rate Impact: If you are a high-income earner in the 45% tax bracket, you would pay $450 in taxes for every $1,000 of rental profit you earn.
- Combined Income: To see how this affects you, you must look at the current income tax rates in Canada for the 2025/2026 tax years.
Rental Income vs. Capital Gains at Death
It is critical to distinguish between annual rental taxation and estate taxation. When you pass away, the CRA applies a “Deemed Disposition.”
This means your property is treated as if it were sold at fair market value on the date of death.
| Category | Taxation Rule | Taxable Portion |
| Net Rental Income | Annual income tax | 100% of net profit is taxable. |
| Capital Gains at Death | Deemed sale | 50% of the profit is taxable. |
The Incorporation Threshold: When Should You Incorporate?
As your rental portfolio grows, you may reach a point where holding property personally is too expensive. Many of our Surrey clients ask, “what is the business tax” for rentals?
By moving your rentals into a Canadian-Controlled Private Corporation (CCPC), you may qualify for the Small Business Deduction (SBD). This can lower your federal tax rate to just 9% on the first $500,000 of profit. We recommend reviewing the benefits of incorporation once your rental income pushes you into a higher personal tax bracket.
How to Lower Your Rental Tax Bill?
To pay less tax, you must understand two CRA rules:
- The Income-Generating Purpose test: You can only deduct costs spent to make money.
- The Reasonableness test: Your spending must be logical for the size of your rental.
Common Deductible Expenses for BC Landlords
- Professional Fees: You can deduct fees for bookkeeping and financial services provided by Phoenix Knight.
- Property Costs: This includes property taxes, insurance, and utilities.
- Maintenance: “Repairs” (fixing what is broken) can be deducted immediately. “Betterment” (improving the property) must be depreciated over time.
- Mortgage Interest: Only the interest portion is deductible — not the principal repayment.
- Capital Cost Allowance (CCA): CCA allows you to depreciate your building over time. However, claiming CCA can reduce your principal residence exemption eligibility and increase taxes at sale.
- Administrative: Office supplies and advertising for new tenants are fully deductible.
To ensure your deductions are safe from a CRA audit, you must know how to design and support a deductible expense with proper receipts and logs.
The Basement Suite Tax Guide for BC Homeowners
If you rent a suite in your primary residence, you can apply the Business Use of Personal Assets rule.
You calculate deductions based on:
- Square footage
- Time used for rental
Example:
If your rental suite occupies 30% of your home, you may claim:
- 30% of mortgage interest
- 30% of property taxes
- 30% of utilities
How to calculate it: You track expenses by the square footage of the rental. If your suite takes up 30% of your home in Surrey, you can claim 30% of your shared home expenses as a business deduction. This is a powerful way to reduce income tax in Canada legally.
Deadlines and Payment Methods for 2026
Missing deadlines leads to interest charges that eat your profits.
- April 30, 2026: Filing and payment deadline for most individuals.
- June 15, 2026: Filing deadline for self-employed individuals (but taxes are still due April 30).
You can pay your taxes in Canada via online banking, CRA My Payment, or third-party services like PaySimply if you prefer to use a credit card.
BC-Specific Taxes Landlords Must Know
In addition to income tax, landlords in BC may face:
Speculation and Vacancy Tax (SVT): Applies in designated BC regions if properties are vacant.
Underused Housing Tax (UHT): Federal tax on certain vacant or underused properties.
Municipal Empty Homes Tax (Vancouver only): Applies to vacant homes within city limits.
GST/HST on Short-Term Rentals: If your short-term rental revenue exceeds $30,000 annually, you may need to register for GST/HST.
These taxes are frequently overlooked by new landlords.
Frequently Asked Questions
How much tax will I pay on my rental income in BC?
It depends on your total personal income. Net rental profit is added to your employment income. If you are in the 30% tax bracket, you will pay roughly $300 for every $1,000 of rental profit.
Can I deduct my mortgage payment from rental income?
No. You can only deduct the interest portion of the mortgage. The principal payment is considered a personal equity gain and is not deductible.
What if I forgot to file rental income for past years?
Do not wait for a CRA letter. Using the Voluntary Disclosures Program (VDP) can help you avoid penalties. We specialize in getting homeowners caught up with their filings.
Is rental income considered passive income in Canada?
Yes. Rental income is considered passive unless you provide significant additional services (like a hotel operation).
Lower Your Rental Income Tax with Phoenix Knight
Proactive planning is the difference between average landlords and wealth builders.
At Phoenix Knight Financial Services, we combine:
- Rental income planning
- Estate tax strategy
- Incorporation analysis
- Compliance protection
Whether you need bookkeeping, T776 preparation, or long-term tax minimization planning, our team supports homeowners across Surrey and Greater Vancouver.
Ready to simplify your taxes?
Contact Phoenix Knight today or fill out our New Client Info Form to get started.
