Rental or Business Income???

Rental income from real property for an individual or partnership will either be property income or business income for tax
purposes.

In general, the number and kinds of service provided in relation to the rental of the property will determine whether the income is property or business income.  The more services that are provided, the more likely that the income will be considered business income.  The number of rental properties being managed will not affect the classification of the income.  For more detailed information, see the Canada Revenue Agency (CRA) Interpretation Bulletin IT-434 Rental of Real Property by Individual.


Why does it matter?

Property income and business income are treated differently for tax purposes.  The following are some of the differences.

Business income

• is reported on line 135 of the tax return, as part of self-employment income.
• is subject to Canada Pension Plan (CPP) premiums on net income.
• is included in working income for purposes of the working income tax benefit (WITB).
• is included in self-employment income for calculation of the refundable medical expense supplement.
• is included in earned income for purposes of calculating the child care expense deduction.

Property income

• from real estate rentals is reported on line 126 of the tax return.
• is not subject to CPP premiums.
• is not included in working income for the working income tax benefit (WITB).
• is not included in self-employment income for calculation of the refundable medical expense supplement.
• is not included in earned income for purposes of calculating the child care expense deduction.

One other important difference is that when the rental income is considered business income*, the filing due date for the individual and for their spouse is June 15th.  The due date for other individuals is April 30th.

* other than a business whose expenditures are primarily in connection with a tax shelter