What is the Rental Income Tax Rate in Ontario?

Whether you’re a new landlord looking for tax rate information or a seasoned landlord double-checking your stock knowledge, you’re in the right place. This guide covers everything you need to know about the rental income tax rate in Ontario.

We recommend reading through this guide before using a rental income tax calculator for Ontario — because this guide will give you all the foundational knowledge you need to fully understand landlord taxation.  

We’ll cover how taxes differ for sole proprietors, co-owners, and corporations. We will also go over possible deductibles from taxable income.

Let’s get started!

The Three Classifications: How Is Rental Income Taxed in Ontario?

So, how much tax do you pay on rental income? Tax on rental income in Ontario depends, first and foremost, on the type of owner or landlord running the rental property. There are essentially three classifications: 

1. Sole Proprietorship

A rental property falls into the “sole proprietorship” category if it is owned and managed by one person. Most small rental properties operate under this category. A few examples include a small apartment owned by one person or a homeowner renting out their basement as a studio unit. 

If you own and operate your rental property as a sole proprietor, then your rental income tax rate in Ontario is equivalent to the applicable marginal tax bracket for your personal income from the rental property. 

2. Partnership (Co-Owners)

When a rental property is co-owned by two or more people, then the tax on rental income in Ontario is shared among the co-owners as part of their respective personal incomes. 

Similar to how rental income tax is determined for sole proprietors, co-owners will also pay a tax for rental property income that is equivalent to the applicable marginal tax bracket for their personal income. 

When it comes to how much each co-owner is taxed, this depends on the ratio set up in the partnership agreement. The greater the percentage a co-owner has in the partnership, the greater the rental income tax rate in Ontario. 

3. Corporation

If a rental property is owned and managed by a corporation or a trust, then taxation is much different compared to sole proprietorships or partnerships. Corporations are considered separate legal entities and are therefore subject to both federal tax and provincial tax. 

As of the writing of this article, the federal tax rate in Canada is 38% while the rental income tax rate in Ontario (provincial tax rate) for corporations is at 11.5%. Under certain circumstances, the corporation may qualify for a small business deduction.

Is All of Rental Income Taxable in Ontario?

Generally speaking, though gross rental income is reported when filing taxes, only net rental income is really taxed. Net rental income is the amount that is left after deducting allowable expenses.

Deductibles on Rental Income Tax in Ontario

Deductibles for tax on rental income in Ontario include the following:

1. Advertising

These are expenses related to advertising efforts for your rental business. This also includes any finder’s fees that you pay out. 

2. Office Expenses

You can deduct office expenses for supplies such as pencils, pens, paper, stamps, printer ink, and so on. However, capital items like computers, cabinets, chairs, and desks are not included here.

3. Professional Fees (Legal & Accounting)

Legal and accounting fees related to your rental business can also be counted as deductibles. An example of this is the legal fee you pay when preparing lease agreements. 

4. Management and Administration Fees

In case you hire a person or company to manage your rental property, these fees can be deducted from your rental income tax rate in Ontario. 

5. Repairs and Maintenance

Minor repairs and general maintenance can also be considered deductible expenses for tax on rental income Ontario. This includes the cost of labour and materials for the job. However, if you do the labour yourself, this cannot be counted as a deductible expense. 

6. Landscaping

If you need regular landscaping services to maintain the land around your rental property, the expenses for these services can also be deemed as deductible expenses. 

7. Salaries, Wages, and Benefits

Salaries, wages, and benefits that are owed to maintenance personnel, superintendents, and the like can also be deducted from your taxable rental income. However, if you do any of these services yourself, the equivalent pay cannot be counted as a deductible.

8. Landlord Insurance

By getting landlord insurance, you will be able to get protection for the following: 

• The rental property’s structure;
• Lost income when the rental property becomes uninhabitable;
• Personal property needed for the upkeep of the rental property; and
• Liability coverage. 

At the same time, the premium paid for the insurance can be deducted from your taxable rental income. For this reason, many landlords consider insurance a necessary investment. 

9. Property Taxes

During the timeframe that your property is available for rent, you will be able to deduct property taxes from the taxable rental income. 

10. Travel

In cases wherein travel is necessary for managing rental properties, supervising repairs, and collecting rental fees, the expenses for travelling (excluding any necessary board and lodging) will be considered a deductible expense. 

11. Utilities

If your rental agreements specify that you will pay for utilities (e.g. gas, electricity, water, cable), then such expenses can be deducted from your tax on rental income in Ontario.

12. Other Rental Expenses

Interest and bank charges related to buying or improving rental properties can also be deducted in certain circumstances.

In addition, motor vehicle expenses can also be included as deductible expenses if you own and manage more than one rental property that is distanced from your main residence. These expenses are considered on a case-to-case basis. 

Get Landlord Insurance That Fits All Your Needs

To many landlords of residental and commercial spaces, landlord insurance is a gift that keeps on giving. Not only are the premiums deductible from tax on rental income in Ontario, but this insurance also offers broad coverage that can protect your rental business.

Landlord insurance goes above and beyond regular property insurance. It insures the property itself, provides liability coverage, and also covers some instances of lost rental income.

By working with an award-winning insurance broker like KASE Insurance, we can take landlord insurance to a whole new level of customization. Our dedicated team of experts will tailor-fit landlord insurance to address your needs and preferences.

You will never have to face business insurance alone. Our experienced team will always be available to assist you with all your future insurance needs. If you have any additional questions about the rental income tax rate in Ontario and how insurance affects the taxable income, our team will be happy to answer.

To get started, contact us today or request a FREE quote!