SIDE HUSTLESOne of the most common questions we hear: is passive income even taxed in Canada? It is. There is no special low rate for side or passive income — every dollar of net profit is added to your other income for the year and taxed at your marginal rate.
How the tax is calculated
You report net income (revenue minus allowable expenses), not gross sales. That net figure is combined with your salary, benefits and other income, and the total determines your federal and provincial tax brackets for the year. Earning an extra $500 a month from a parking spot or an Etsy shop can push part of your income into a higher bracket — which is why the 25–30% set-aside rule is a safe habit.
Property income vs business income — it changes more than the form
- Rental (property) income reported on Form T776: no CPP contributions on the net income.
- Business income reported on Form T2125: net self-employment earnings are subject to CPP contributions.
- Both are reported on lines 13500–14300 of your T1 return.
The CRA looks at how many services you provide to decide which category applies — the more services, the more likely the income counts as business income.
Deductions that lower the bill
For rentals, the CRA's T4036 guide lists deductible expenses including insurance, interest and bank charges, repairs and maintenance, management fees, and professional fees. Keep receipts for everything — the CRA can ask for them years later.
Two rules that catch people out
- Since January 1, 2024, deductions can be denied for short-term rentals that aren't compliant with provincial registration, licensing and income-reporting requirements.
- Since 2023, profits from selling a 'flipped property' — a home you bought and resold quickly to profit — are fully taxed as business income, with no capital-gains treatment.
This is general information, not tax advice. Your situation may differ — check CRA rules or talk to a tax professional before filing.