Subleasing your apartment in Canada can be a practical way to cover rent while you travel or to help a friend find a short-term place. But the tax rules around it are often misunderstood. If you sublet your place and collect rent from a subtenant, the Canada Revenue Agency (CRA) generally treats that money as rental income you need to report on your tax return. Many people assume that because they are not the property owner, they don’t have tax obligations — that assumption can lead to penalties and unexpected tax bills.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Whether you sublet a room in your principal residence or the entire apartment while you’re away, the CRA expects you to report what you collect. The rules differ depending on whether you’re subletting a room in your own home or a separate rental unit, and whether the sublease is short-term or long-term. Here’s what you actually need to know.
One term you’ll run into quickly is Form T776.
What I tend to notice is that most people who sublet don’t realise they need to file this form at all. They think because they’re not the landlord on the original lease, the CRA won’t care. That’s not how it works.
What counts as taxable income when you sublet
Rental income includes more than just the monthly rent cheque from your subtenant. The CRA defines it broadly as any payment for the use or occupation of property you control. If you sublet your apartment and collect rent, that’s taxable income. But it also includes parking fees, storage fees, late payment charges, and any non-refundable deposits you keep. Even if your subtenant pays you in cash or through an app like eTransfer, it counts.
Refundable security deposits are not taxable when you receive them, as long as you intend to return them. If you end up keeping part of a deposit to cover damages or unpaid rent, that amount becomes taxable income in the year you keep it.
There is one exception worth knowing. If you sublet to a family member at below-market rent with no intention of making a profit, the CRA may treat this as a cost-sharing arrangement rather than rental income. In that case, you don’t report the payments as income, but you also cannot deduct any rental expenses. This is a common misunderstanding — people think they can claim a rental loss on a below-market sublease to a relative. You cannot.
Which expenses you can deduct as a sublessor
If you sublet your entire apartment while you’re away, you can deduct the full amount of eligible expenses you continue to pay — things like rent to your landlord, utilities you cover, and tenant insurance. If you sublet only a room in your home, you deduct a proportionate share based on the square footage rented.
For example, if your home is 2,000 square feet and you sublet a 400-square-foot bedroom, you can deduct 20% of your mortgage interest, property taxes, home insurance, and utilities. You cannot deduct mortgage principal payments, personal groceries, or furniture for your own use.
The CRA distinguishes between current expenses and capital expenses. Current expenses — like fixing a leak, painting between tenants, or minor plumbing — are fully deductible in the year you pay them. Capital expenses — like replacing a roof, finishing a basement, or a major kitchen renovation — are not deductible immediately. They are added to the property’s cost and depreciated over time through Capital Cost Allowance.
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| Expense type | Deductible? | How it works |
|---|---|---|
| Mortgage interest | Yes | Only the interest portion, not principal |
| Property taxes | Yes | Fully deductible in year paid |
| Utilities (heat, water, electricity) | Yes | If you pay them, you can deduct them |
| Repairs and maintenance | Yes | Must maintain current condition, not improve it |
| Advertising for subtenant | Yes | Costs to find a subtenant are deductible |
| Property management fees | Yes | If you hire someone to manage the sublease |
| Mortgage principal | No | Not a rental expense |
| Capital improvements | No | Added to property cost, depreciated via CCA |
| Personal expenses | No | Groceries, personal furniture, etc. |
Common tax mistakes sublessors make
Not reporting sublease income at all
This is the most common error. People assume that because they’re not the property owner, the income doesn’t need to be declared. The CRA receives information from various sources, including tenancy databases and payment platforms. If you collect rent through eTransfer or PayPal, there is a digital trail. Failing to report can lead to penalties, interest on unpaid tax, and a reassessment. If you sublet and collect rent, file Form T776.
Claiming CCA on a principal residence sublease
Claiming Capital Cost Allowance on a property that is also your home can create a significant tax problem later. When you sell, the CRA recaptures the CCA you claimed as income. Worse, it can reduce or eliminate your Principal Residence Exemption on the portion of the property you rented. Most tax professionals advise against claiming CCA on a property that is your principal residence. The short-term tax savings are rarely worth the long-term cost.
Mixing personal and rental expenses without prorating
If you sublet a room in your home, you cannot deduct 100% of your mortgage interest or utilities. You must prorate based on the square footage rented. A common mistake is deducting the full amount and hoping the CRA doesn’t notice. The CRA expects a reasonable allocation. If you don’t prorate correctly, they may disallow the deduction entirely and reassess your return.
Ignoring short-term rental compliance rules
If your sublease is for less than 90 consecutive days, you may need to register with your municipality, obtain a licence, and comply with local bylaws. As of January 1, 2024, non-compliant short-term rentals in Canada cannot deduct any rental expenses. That means your entire rental income becomes taxable with no offsetting deductions. Some municipalities also charge an accommodation tax — Ottawa, for example, charges 5%.
How to report sublease income step by step
Determine your filing obligation
If you collected any rent from a subtenant during the tax year, you must report it. There is no minimum amount. You report rental income on Form T776, which you file with your T1 personal income tax return. The form asks for gross rental income, a list of expenses, and net rental income or loss.
Calculate your deductible expenses
Gather receipts, bank statements, and lease agreements. If you sublet a room, calculate the percentage of your home used for rental based on square footage. Apply that percentage to each eligible expense. If you sublet the entire apartment, you can deduct the full amount of rent you pay to your landlord, plus utilities and insurance you cover.
Decide whether to claim CCA
Capital Cost Allowance is optional. If you sublet a room in your principal residence, the safest approach is not to claim it. If you sublet a separate rental property you own, CCA may make sense if you are in a high tax bracket now and expect to be in a lower one later. But understand that claiming CCA creates recapture risk on sale.
File Form T776 with your tax return
You can file electronically using tax software or on paper. The form is straightforward: you enter your gross rental income, list your expenses, and calculate your net rental income or loss. If you have a rental loss (expenses exceed income), you can use it to offset other income like employment or investment earnings. But the CRA scrutinises repeated losses — if you claim losses year after year, they may argue you have no reasonable expectation of profit and deny the deductions.
Keep records for six years
The CRA requires you to keep all rental-related records for six years from the end of the tax year. This includes your sublease agreement, receipts for expenses, bank statements showing rent deposits, and any correspondence with your subtenant. If you are audited, you need to be able to show every dollar of income and every deduction claimed.
Short-term sublease compliance (if applicable)
If your sublease is for less than 90 consecutive days, check your municipal and provincial requirements. You may need a short-term rental licence, registration number, or permit. Without it, you cannot deduct expenses. You may also need to register for GST/HST if your total rental revenue exceeds $30,000 in a year. If you provide hotel-like services — daily cleaning, meals, concierge — the CRA may classify your activity as a business rather than a rental, which changes how you report income.
Frequently asked questions about sublease taxes in Canada
Do I need to report sublease income if I only sublet for one month? ▾
Can I deduct the rent I pay to my landlord if I sublet the whole apartment? ▾
What happens if my subtenant pays in cash and I don’t report it? ▾
Is a security deposit from my subtenant taxable? ▾
Can I claim a rental loss if I sublet below market rate to a friend? ▾
Do I need a GST/HST number for short-term subleasing? ▾
Subleasing without a tax surprise
The single most important thing to understand is that subleasing creates a tax obligation whether you make a profit or not. The CRA expects you to report the income and claim only the expenses that are properly yours to deduct. The rules around short-term rentals are tightening, and non-compliance can cost you every deduction you thought you had. If your situation is complex — especially if you own the property and sublet part of it — speaking to a tax professional who knows Canadian rental rules is worth the fee.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Understanding Leasehold Tenure Regulations in Canada.
Sources and Further Reading
Tips for Renting an Apartment with a Cosigner in Canada — Practical guidance if you’re navigating rental agreements with a cosigner, which can affect your tax situation.
RGB Accounting (2025). Rental Income Tax Guide Canada 2025–2026. 🔗
Canada Tax Calculator (2025). Rental Income Tax Guide Canada. 🔗
Manage Your Property (2026). Rental Income Reporting for Canadian Taxes. 🔗
Canada Revenue Agency. T4036: Rental Income Guide. 🔗
