To help offset the cost of operating a rental property, landlords can claim capital cost allowance on certain buildings and property. The Canada Revenue Agency divides depreciable property into different classes you can claim. Make sure your rental property meets all the conditions before claiming the allowance on your tax return.
Land and Buildings
Do not claim land as a depreciable property. When you purchase a rental property, only include the building’s cost on Form T776, Statement of Real Estate Rentals. A building may be considered class 1, 3, 6, 31 or 32. It depends on what the building is constructed of and the date of purchase.
If you purchase a condo, it is part of the same building class. For example, if you are the owner of a condo in a class 1 building, your individual unit is also class 1. Interpretation Bulletin IT-304, Condominiums, has information condo owners may find helpful on classifying their unit.
Leasehold interest is any interest you receive from your tenant as a landlord. If you are receiving leasehold interest, include it as a depreciable property in class 1, 3, 6 or 13. If you purchased the property before 1988, include it in class 3, 6 or 13. From time-to-time, you may have to split the capital cost into more than one class. When selling your property, do not forget to deduct the undepreciated capital cost.
Class 13 is the capital cost of a leasehold interest. You can claim the following:
- Money spent by your tenant on capital improvements or alterations to your leased property. Do not deduct improvements and alterations that are part of the building or structure.
- Money spent by your tenant to obtain or renew the lease or sublease, including any amount paid to sublease your property.
Amounts you do not claim include:
- When your tenant pays to cancel the lease.
- When your tenant pays an amount in place of rent.
Review Interpretation Bulletin IT-464, Capital Cost Allowance – Leasehold Interests for further details.
Class 31 and Class 32
Included in class 31 and class 32 are multiple unit residential buildings. MURB receive certification by the Canada Mortgage and Housing Corporation and meet the following conditions:
- The building must be in Canada.
- The building has at least two units.
- The building provides its tenants with a permanent residence.
The units in a building that qualifies as a class 31 or class 32 MURB are also classified as class 31 or class 32. For a building to be classified as class 31, it must have been purchased between 1979 and June 18, 1987. For a building to be classified as class 32, it must have been purchased before 1980.