Tax Tips for Real Estate Investors in Ontario

Navigating tax rules effectively can have a major impact on the profitability of real estate investments. In Ontario, all rental income must be reported and is fully taxable—you can offset this with deductions, but careful record keeping is essential to ensure you’re not paying more tax than necessary. Additionally, capital gains on property sales are taxable at only 50 percent of the gain, making timing and tax planning essential considerations.

One of the most important strategies is to maximize your deductible expenses. Eligible deductions include mortgage interest, property taxes, insurance, maintenance, repairs, utilities, property management fees, and certain professional services. Every expense that is ordinary, reasonable, and directly related to the rental property helps reduce your taxable income.

The Canada Revenue Agency offers depreciation on income properties through the Capital Cost Allowance (CCA). While land does not qualify, you can deduct a portion of the building’s value each year, typically around 4 percent on a declining balance, to reduce taxable income. Just be aware that when you sell, any depreciation you claimed may be recaptured and become taxable.

Real estate investors with multiple properties or larger portfolios may benefit from incorporating. A corporation can provide liability protection and may offer lower tax rates on active business income. Earnings left in the corporation can be reinvested tax deferred, supporting growth. This strategy is complex and requires professional advice, but it can be powerful.

Timing matters a lot. Strategically timing your property sales for years with lower personal income can minimize taxes on capital gains. Spreading sales across years can also prevent pushing yourself into a higher tax bracket. Additionally, if you share ownership with a spouse, you may be able to split income or gains to lower your overall tax exposure.

Finally, keeping detailed records and working with a tax professional who understands Ontario real estate is vital. Rental property tax rules evolve and have regional nuances, especially in markets like Ottawa. A good accountant can help ensure compliance, identify all available deductions, and support long-term tax planning, so you keep more of what you earn.