Can You Deduct Rental Property Expenses When It’s Used by Family?
When it comes to rental properties, one of the most common CRA questions is:
“Is this really a rental property, or just a personal home?”
A recent Tax Court of Canada case reminds us that not every “rental” setup qualifies for deductions, especially when family members live in the property.
Let’s look at what happened, what CRA decided, and what every property owner should learn from it.
Background of the Case
A taxpayer owned a small house in Ontario and reported rental losses for several years.
However, the property was occupied by his mother, who made some payments toward the home’s costs.
The taxpayer claimed that since his mother was living there and making payments, the home should count as a rental property, allowing him to deduct related expenses such as utilities, repairs, and maintenance.
CRA disagreed. It reassessed his returns and denied the deductions, arguing the arrangement was not a genuine rental. The dispute ended up before the Tax Court.
The Taxpayer’s Argument
The taxpayer argued that:
The home was operated as a rental property;
His mother was a tenant, not a dependent;
The payments were rental income, not personal contributions;
Therefore, the expenses should be deductible as rental expenses.
CRA’s Position
CRA took the opposite stance:
The arrangement looked more like personal support for a family member, not a business transaction.
Since the taxpayer didn’t earn actual rental income, it did not qualify as income from a property or business.
Under Section 18(1)(a) and 18(1)(h) of the Income Tax Act, deductions for personal or living expenses cannot be claimed.
In short: if you’re not earning legitimate rental income, you can’t deduct the costs.
The Legal Test — “Was There an Intention to Earn a Profit?”
The Court referred to a key precedent — Stewart v. R (2002).
It asked two important questions:
Was the taxpayer genuinely trying to earn a profit, or was it a personal arrangement?
If it was for profit, is the income from business or property?
To decide, the Court looked at several factors:
The taxpayer’s profit and loss records in past years
Their experience or training related to rentals
Whether the activity looked businesslike (ads, leases, rent collection)
The potential of the property to earn profit
What the Court Found
The Court ruled against the taxpayer.
Here’s why:
There was no rent increase after the mother moved in or after renovations.
Most utilities and expenses were still paid by the taxpayer.
The property was never advertised for rent.
The taxpayer even stayed there himself, using rooms for storage and visits.
Together, these facts showed it was a personal living arrangement, not a commercial rental.
As a result, CRA’s reassessment stood, no deductions allowed.
Pantax Insight: What You Can Learn
This case highlights a simple but crucial point:
If there’s no real intention to make a profit, the CRA won’t see your property as “rental income.”
Before claiming deductions for rental losses, make sure:
You have a formal lease or rent agreement.
Rent is reasonable and actually collected.
The property is available for rent to the public (not just family).
Records — like listings, bank deposits, and receipts, can prove commercial intent.
Even if you rent to relatives, you can still claim expenses only if the terms reflect a genuine business relationship.
Key Tax Rule References
Section 18 of the Income Tax Act: Limits deductions to business or property income. Personal expenses are excluded.
Section 67 of the Income Tax Act: Expenses must be reasonable in the circumstances — i.e., a typical landlord would have paid a similar amount.
In Summary
Not every “rental” qualifies as a rental property in CRA’s eyes.
If your property is used by family, make sure the setup looks, and operates, like a real rental business.
Keeping your paperwork consistent, setting fair market rent, and separating personal and business costs are key steps to staying compliant.
Disclaimer
This article provides general information only and does not constitute accounting or legal advice. Every case is different. For personalized advice, please contact Pantax for a consultation.