Capital Gains and Tax Write-Offs: A Toronto Landlord’s Guide to Saving Thousands

Ah, the holidays—time for cozy nights, festive lights, and indulging in way too many shortbread cookies. 🎄 But let’s not forget what’s right around the corner: tax season! If you’re a rental property owner in Toronto, it’s time to get ahead of the game and discover all the juicy tax write-offs you can claim.

Whether you’re leasing out a chic downtown condo or preparing to sell a freehold investment property, understanding the difference between current and capital expenses, as well as knowing which costs qualify as tax write-offs, can save you thousands of dollars—and a few headaches.

Let’s dive in (with some real-world examples) and uncover how to maximize your rental property tax write-offs this year!

Current vs. Capital Expenses: The Foundation of Tax Write-Offs

Before we get into the good stuff, it’s crucial to know the difference between current expenses and capital expenses.

Current Expenses: These are routine, recurring costs that maintain your property, like repairs or minor touch-ups. They can be written off in the year you incur them.

Capital Expenses: These are big-ticket costs that improve your property’s value or extend its useful life (think renovations or major upgrades). Instead of deducting them all at once, you’ll depreciate these costs over time through the Capital Cost Allowance (CCA).

This distinction matters because it determines when and how much you can write off each year. Read more about current vs. capital expenses on the CRA website.

Top Tax Write-Offs for Toronto Landlords

Here’s a breakdown of the most important tax write-offs for Toronto landlords to claim:

1. Advertising Costs

Any money spent to market your rental property or prepare it for sale can be written off, including:

Online property listings
Social media ads
Professional photography
Real estate agent commissions (for tenant placement or selling the property)

Learn more about rental income advertising expenses from the CRA.

2. Insurance Premiums

Rental property insurance is fully deductible. If you own a condo, the portion of insurance included in your condo fees may also qualify.

3. Property Taxes

Claim property taxes for the period your property was rented or available for rent. For mixed-use homes, write off a percentage proportional to the rented space.

4. Utilities

If you cover utilities like hydro, water, or heating for your tenants, those costs are fully tax-deductible.

5. Repairs, Maintenance, and Renovations

Repairs and Maintenance
Routine maintenance and repairs are tax write-offs in the year they occur. These costs restore the property to its original state without adding significant long-term value.

Examples of Repairs and Maintenance:

Fixing a leaky faucet or roof
Repainting walls or repairing drywall
Replacing broken tiles or damaged windows

Renovations (Capital Expenses)
Renovations that improve the property’s value or extend its useful life are considered capital expenses. These cannot be deducted immediately and must be depreciated over time using the Capital Cost Allowance (CCA).

Examples of Renovations:

Upgrading kitchen cabinets or countertops
Installing hardwood floors where there were none
Adding a bathroom or renovating an existing one
Replacing an old roof with a higher-quality one

Quick Tip: Not sure which category your expense falls into? Ask yourself:

Does the work simply restore the property to its original state? → It’s a repair.
Does it improve or upgrade the property’s value? → It’s a capital expense.

Learn more about repairs vs. capital expenses from the CRA.

6. Selling Costs

Selling your property? Deduct costs related to the sale, such as:

Realtor commissions
Legal fees for closing
Mortgage penalties (included in cost-to-sell calculations for capital gains).

7. Unpaid Rent

If a tenant skips out on rent, you can write off the unpaid amount as a rental loss, provided you keep records of your collection efforts.

8. Management and Professional Fees

Hiring a property manager, accountant, or lawyer? Fees for services like tenant placement, maintenance management, or tax prep are all deductible.

9. Condo Fees

Condo owners can write off monthly condo fees associated with the rental unit. However, special assessments for major upgrades (like new elevators) count as capital expenses.

10. Interest on Borrowed Money

You can deduct interest paid on loans or mortgages used to:

Purchase the rental property
Fund improvements or renovations to make the property rentable.

Selling Costs and Capital Gains Tax

When you sell a rental property, you’ll either have a capital gain or a capital loss. Here’s the formula:

Capital Gain/Loss = Selling Price – Purchase Price – Cost to Sell

What Counts as Selling Costs?

Realtor commissions
Legal fees for closing
Mortgage penalties (included in your cost-to-sell calculations)

Capital Gains Example

Sam bought a Toronto rental property ten years ago for $300,000 and sold it for $400,000. Let’s calculate:

Realtor fees: $11,000
Legal fees: $1,500
Mortgage penalties: $2,500
Total cost to sell: $15,000
Selling price: $400,000
Net selling price: $400,000 – $15,000 = $385,000
Original purchase price: $300,000
Capital gain: $385,000 – $300,000 = $85,000

Taxable Capital Gain: 50% of $85,000 = $42,500

If Sam’s tax rate is 38%, the tax owing is:
38% of $42,500 = $16,150

Learn more about how capital gains tax is calculated on the CRA website.

What You Can’t Write Off

Not all expenses are eligible for tax write-offs. Here are some key exceptions:

Land Transfer Taxes: Paid when you purchased the property, these are added to the purchase price for capital gains purposes but can’t be deducted directly.
Mortgage Penalties: Breaking your mortgage early? These fees are included in your selling costs but not directly deductible.
Sweat Equity: If you personally renovate, repair, or clean your rental property, you can’t write off the value of your time and effort (sweat equity). Only costs paid to third-party professionals qualify.

Final Thoughts: Tax Write-Offs and Capital Gains Don’t Have to Be Scary

Tax season can feel overwhelming, but understanding the ins and outs of capital gains taxes and tax write-offs will help you save thousands. Whether you’re leasing out a condo, selling a freehold, or navigating unpaid rent, the key is to:

Keep detailed records of all expenses.
Understand which costs you can claim now and which must be depreciated.
Work with a tax professional to maximize your savings and stay compliant.

If you’re ready to make your next investment move, sell a property, or just want to talk strategy, let’s connect! I’m here to help Toronto landlords navigate every step of their real estate journey.

Your Home Girl,
Vanessa Copeland

Resources for Toronto Landlords

Canada Revenue Agency (CRA): Rental Income and Expenses
- Understanding Rental Income Deductions
CRA: Capital Gains Tax Guide
- Learn How Capital Gains Are Calculated
CRA: Business Expenses Guide
- Repairs, Capital Expenses, and CCA Explained
Government of Ontario: Land Transfer Tax Information
- Details on Land Transfer Tax Rules
Canada.ca: Deducting Mortgage Interest and Borrowed Funds
- Mortgage Interest and Rental Properties