Capital vs Current Expense

How the CRA decides whether a rental cost is deducted in full this year or added to the property's cost and claimed over several years.

Every cost of running a rental is either a current expense or a capital expense. Current expenses recur and give a short-term benefit, so they are deducted in full in the year you incur them. Capital expenses give a lasting benefit. They are generally added to the cost of the property and deducted over time.

The CRA uses a series of questions to sort them. Does the expense give a lasting benefit? Does it maintain the property, or improve it beyond its original condition? Is it for part of a property or for a separate asset? An expense that simply restores a property to its original condition is usually current.

The amount spent is considered only when the earlier questions do not settle it. Two other situations generally point to capital. Repairs to used property you bought, to make it fit for use, are capital. Repairs made because you plan to sell are usually capital too, unless they would have been made anyway.

Repairing part of the building back to its earlier condition is typically current. Improving the property beyond its original condition, or replacing a separate asset, is typically capital. Capital costs for depreciable property are recovered through capital cost allowance. They also form part of the adjusted cost base used to calculate a capital gain when you sell.

Getting this wrong cuts both ways. Treating a major improvement as a repair overstates this year's deduction and can lead to a reassessment. Treating a true repair as capital delays a deduction you were entitled to. Keep invoices that clearly describe the work, since the description often decides the category.

General information only, not legal, tax, or financial advice. Rules change and vary by province; confirm the current details with the relevant authority before you rely on them.