Renting to Relatives? Do These 7 Things or Don’t Claim the Loss

How to help family without blowing your rental deductions

Quick truth: kindness isn’t a tax strategy. If your “rental” looks like a favour, CRA will treat it like a favour, and your write-offs can disappear.

The 20-Second Take

• Family + discount rent + thin paperwork = high audit risk.
• If CRA says there’s no real “source of income,” losses are denied.
• Courts look at the total picture (profit pursuit vs. personal support). One miss won’t sink you, patterns will.
• Even if you pass the profit test, CCA can’t create or increase a loss (Reg. 1100(11)).

What CRA Actually Says (Plain English)

• Rent to someone you know at below-market rates and create a loss? You can’t claim the loss. CRA often sees this as support/cost-sharing, not a business.
• You can claim a loss when renting to a relative at arm’s-length terms (market rent) with a credible expectation of profit, but you’ll need to show your work.

Why This Flares Up: The Cautionary Case

Blecha v. The King (2025 TCC 91)

• Son rents to his mother at below-market rates.
• No marketing.
• Property treated like a future personal residence.

Court’s Conclusion:
No genuine profit pursuit → no source of income → expenses disallowed → losses denied.

Why It Matters:
Courts apply the Stewart Test. Fail the first door (profit vs. personal) and none of the deduction rules even apply.

A 1-Minute Story (Happens Every Tax Season)

Alex buys a bungalow to rent out. His mom needs a place, so he charges “something reasonable,” never posts an ad, rent lands in his personal account, and he claims a tidy loss.

CRA looks at the whole picture and says:
“That’s support, not a commercial rental.”

Result:

• Expenses disallowed
• Loss denied
• Refund gone

If you aren’t pursuing profit, nothing else matters.

Spot the “Favour Flags”

The patterns that sink deductions:

• Relative as tenant + below-market rent
• No public ad, no screening
• No standard lease, no deposit, no late-fee or renewal terms
• Commingled money (rent into personal account)
• Renovations or talk of future personal use

If this feels familiar, you’re on thin ice.

Fix It Now: Your 7-Step Playbook

1. Price It Right

• Charge market rent
• Save dated screenshots of comparable listings or get a broker letter

2. Paper It Properly

• Standard lease
• Deposit
• Late-fee clause
• Renewal terms

3. Show Your Work

• Public ads with dated screenshots
• Basic application
• References or credit checks (where appropriate)

4. Separate the Money

• Dedicated rental bank account
• Clean ledger
• Receipts and tracking

5. Inspect & Document

• Move-in and move-out inspections with photos
• Work orders
• Maintenance schedule

6. Govern Like a Business

• A simple 1-page investment plan (hold, yield, exit)
• Annual rent review note

7. Know the Limits

• CCA cannot create or increase a loss (Reg. 1100(11))
• For short-term rentals, non-compliance with local rules means related deductions can be denied under ITA 67.7

Two Honest Playbooks (Pick One — Don’t Mix Them)

A) Commercial Family Rental (Safer for Deductions)

• Market rent proved with comps or broker note
• Public listing exists (keep screenshots)
• Standard lease + deposit + late-fee
• Separate bank account + tidy ledger
• Inspections, work orders, receipts on file

Signal:
“We’d rent to anyone on these terms — this just happens to be family.”

Remember: CCA cannot create/increase a loss.

B) Support Housing (Simple & Low-Risk)

• You intentionally charge below market
• You don’t claim a loss
• Many cases treated as cost-sharing
• Income and expenses may be omitted entirely

Signal:
“This is support, not a business.”

Quick Examples (Feel the Difference)

Risky

• Basement rented to your son at 60% of market
• No ads
• E-transfers to personal account
• “We might move in next year”

Likely Outcome:
CRA calls it personal → loss denied.

Safer

• Condo rented to your mother at market rate
• Comps and ad screenshots on file
• Standard lease with deposit/late fees
• Separate account & ledger
• Annual rent-review note

Likely Outcome:
Looks profit-seeking → deductions have a chance.

Extra Traps to Watch

• CCA cap: You cannot use depreciation to create or increase a rental loss.
• Short-Term Rentals (2024+): If you’re non-compliant with local permits/licensing, ITA 67.7 can deny all related deductions.

The 2-Minute Self-Audit

Ask yourself:

• Would a stranger get the same price and terms?
• Can you prove market rent and show that you advertised?
• Do you have a lease, deposit, late-fee, and separate banking?
• Do your renos and plans look like an investment, not caretaking?

If not, tighten up before claiming a loss.

Bottom Line

Renting to family isn’t forbidden. It’s high-documentation territory.
If the facts look like support, CRA will treat it like support — and your deductions won’t survive.

Either run it like a business you can prove, or skip the loss and keep your kindness (and your sanity).