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 vanish.

The 20-Second Take 

• Family + discount rent + thin paperwork = high audit risk. If CRA says there’s no real “source of income,” expenses and losses can be denied.

• Courts look at the whole 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/increase a rental loss (Reg. 1100(11)).

What CRA actually says (in plain English)

• Rent to someone you know below market and it creates a loss? You can’t claim the loss. CRA often treats this as cost-sharing/support, not a rental 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.

The cautionary case (why this flares up)

Blecha v. The King (2025 TCC 91): Son rents to his mother at below-market rates, does no marketing, treats the home like a future personal place.

Court: No genuine profit pursuit → no source of income → expenses disallowed, losses denied, income effectively nil.

Why it matters: Courts apply the Stewart test. If you fail the first door (profit vs. personal), the deduction rules don’t even come into play.

A 1-Minute Story (this 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 landed 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. The math that worked on paper? Poof!

Why? If you’re not pursuing profit, nothing else matters.

Spot the “FavoUr Flags” (the stuff that sinks deductions)

• Relative as tenant and below-market rent 

• No ad or public listing; no screening 

• No standard lease, deposit, late-fee or renewal terms 

• Commingled money (personal a/c) 

• Renovations & talk of future personal use

If this sounds familiar, you’re skating on thin ice.

Fix it Now: Your 7-Step Playbook

1. Price it right

Charge market rent; save dated screenshots of comps or get a broker letter.

2. Paper it properly

Standard lease; deposit; late fee; renewal terms.

3. Show your work

Public ad(s) with dated screenshots; basic application; references/credit where appropriate.

4. Separate the money

Dedicated bank account; clean ledger; receipts.

5. Inspect & document

Move‑in/out inspections with photos; work orders; maintenance schedule.

6. Govern like a business

1‑page investment plan (hold, yield, exit); annual rent review note.

7. Know the limits

CCA can’t create/increase a loss (Reg. 1100(11)); STR deductions can be denied if non‑compliant (ITA 67.7).

Two Honest Playbooks (pick one—don’t mix them)

A) Commercial Family Rental (safer for deductions)

• Market rent proved with comps/broker note

• Public listing exists (keep screenshots)

• Standard lease + deposit + late-fee policy

• Separate bank account + tidy ledger

• Inspections, work orders, receipts on file

What it says: “We’d rent to anyone on these terms, this just happens to be family.”If you pass the profit test: remember CCA cannot create/increase a loss.”

B) Support Housing (simple & low risk)

• You intentionally charge below market to help family.

• You don’t claim a loss (many such cases are treated as cost-sharing, so income/expenses may be omitted)

What it says: “This is support, not a business. We’re not manufacturing deductions.”

Quick Examples (feel the difference)

Risky

Basement 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 to your mother at market; comps & ad screenshots on file; standard lease with deposit/late fees; separate account & ledger; annual rent-review memo.Likely outcome: Looks profit-seeking ⇒ deductions have a fighting chance.

Extra traps to watch

• CCA cap (Reg. 1100(11)): You cannot use depreciation to create or increase a rental loss, common after repairs or vacancy. Plan cash flow without relying on CCA to push you negative.

• Short-term rentals (from 2024): If your STR is non-compliant with local rules (licence/permit), new ITA s.67.7 can deny related deductions outright. Compliance first; deductions second.

The 2-Minute Self-Audit

• 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/plans look like an investment, not caretaking?

If you can’t say yes, don’t build your return around a loss, tighten up first.

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 and losses won’t survive.

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

Don’t risk your deductions—book a consultation with Anker RETax today and make sure your family rentals stay tax-compliant.

Free Consultation

renting to relatives CRA, rental loss tax rules, family rental deductions Canada, CRA audit rental property, Smith Manoeuvre rentals, capital gains rental, tax tips landlords Canada, rental income CRA, housing support vs rental, Canadian property tax deductions