🏠 Renting below fair market value – CRA guidance

When you rent out a property you own in Canada, the Canada Revenue Agency (CRA) normally expects you to charge a rent that reflects the fair market value (FMV) — that is, what a willing tenant would pay in the open market for that unit. If the rent charged is substantially below FMV, special rules apply.

📍 What “below fair market value” means

If you let a property you own to a family member or someone you know for a rent that is far lower than what you would charge an unrelated tenant, CRA may consider this arrangement as a cost-sharing situation rather than a commercial rental activity. It’s an indication that your intent might not be to earn rental income in the usual sense.

  • For example, asking a relative to pay a small amount toward groceries or household upkeep is treated as cost sharing, not “rent”.
  • You do not include these amounts in your rental income and you cannot claim rental expenses.

📌 When you don’t report rent as income

If the rent you receive is significantly below FMV and the arrangement is effectively a contribution toward household costs rather than a rental for profit, the CRA’s position is:

  • You do not include the amount received in your income as rental income.
  • You cannot claim a rental loss for tax purposes.
  • Expenses you incur would not be considered as incurred to earn rental income, and therefore generally are not deductible against the rent received.

This effectively means the transaction may be seen as a cost-sharing or personal arrangement rather than a taxable rental business.

📊 When deductions and losses still apply

However, if:

  • You charge the same rent to a relative that you would to an unrelated tenant at arm’s length; and
  • You reasonably expect to make a profit from renting the property;

…then your rental activity is treated as a business or property income for tax purposes. In that case:

  • You must report rental income.
  • You can claim deductible expenses like interest, utilities, taxes, repairs, and depreciation (CCA) to the extent they are incurred to earn income.
  • If expenses exceed income you may claim a rental loss, potentially offsetting other income.

📌 Rental losses and activity source of income

For a rental activity to generate deductible losses, CRA generally requires evidence you carried on the activity with the intention of earning income. If expenses are consistently greater than the rent received because the rent is below FMV, CRA can conclude that the rental operation is not a source of income, and losses may be disallowed.

📘 Practical considerations

  • When renting to a related party, determine a fair market rent using local comparables or professional appraisals — this supports your position if audited.
  • If you charge below FMV for personal reasons (helping a family member), treat it as cost-sharing and avoid reporting or claiming rental-related amounts.
  • Document your rental agreements to show intent and pricing basis.

📌 Forms and publications

  • Guide T4036 – Rental Income (detailed CRA guide).
  • Form T776 – Statement of Real Estate Rentals (used to calculate income/loss when renting at FMV).

🔎 Summary

In Canada, renting out a property below fair market value to someone you know is often treated by CRA as a cost-sharing arrangement, not a commercial rental business. In such cases you generally:

  • Do not report the “rent” as income.
  • Cannot claim rental expenses or losses.

If you charge market rent and intend to profit from the rental, normal rental income rules apply, and you can report the rent and claim expenses accordingly.