{"id":69322,"date":"2025-08-14T15:34:09","date_gmt":"2025-08-14T15:34:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/69322\/"},"modified":"2025-08-14T15:34:09","modified_gmt":"2025-08-14T15:34:09","slug":"renting-to-friends-or-family-heres-how-to-avoid-hot-water-with-the-cra","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/69322\/","title":{"rendered":"Renting to friends or family? Here\u2019s how to avoid hot water with the CRA"},"content":{"rendered":"

My father owns a rental property in the Niagara region. This week, he visited one of the tenants who mentioned that the occupants living in the apartment above them were very noisy. <\/p>\n

\u201cMost nights they make a lot of noise stomping around until well after midnight,\u201d the tenant said. \u201cI\u2019m sorry about that, it must really bother you,\u201d my father said. \u201cNot really,\u201d replied the tenant. \u201cI\u2019m usually up that late anyway \u2013 practising my trumpet.\u201d<\/p>\n

If you own a rental property, you\u2019re no doubt aware of the many issues that a landlord deals with day to day. But you should also be aware of how the Canada Revenue Agency (CRA) thinks about rental properties \u2013 particularly when you rent to a friend or relative. A recent court decision highlights some potential red flags to consider.<\/p>\n

The story<\/p>\n

On June 25, 2025, the Tax Court of Canada rendered a decision in the case Blecha v. The King (2025 TCC 91)<\/a>. Mr. Blecha owned a rental property in a small town in Ontario, and rented the home to his mother. And for three consecutive tax years (2015, 2016 and 2017), he reported rental losses of $14,312, $17,619 and $10,693, respectively.<\/p>\n

If you own a rental property personally, losses like this will save you tax when you apply those losses against other income you might earn. This was the case for Mr. Blecha. The CRA doesn\u2019t like to see recurring losses (three years in a row is a red flag) from a business or rental property. It raises questions as to whether you\u2019ll ever report a profit.<\/p>\n

In this story, the CRA reassessed Mr. Blecha to disallow expenses related to the rental property to eliminate the losses he reported. The CRA\u2019s argument was that the property was not a \u201csource of income.\u201d In order to claim expenses against income, an activity must be considered a source of income. <\/p>\n

This is not to say that the activity (the rental property in Mr. Blecha\u2019s case) must produce a profit every year. But the historical court decision Stewart v. R (2002 TC 6969)<\/a> established that if you aren\u2019t earning a profit, you had better be able to show a sufficient level of commerciality so that it\u2019s clear your activity is not a personal endeavour or hobby. In this case, your activity should be considered a source of income, and your losses should be allowed. <\/p>\n

In Mr. Blecha\u2019s case, the CRA argued, in the alternative, that if his property did count as a source of income that his expenses should only be allowed if they were: (1) not personal in nature; (2) incurred for the purpose of gaining or producing income from the property; (3) not capital costs; and (4) reasonable in the circumstances. These are the tests that always apply to every expense you hope to deduct against any business or property income.<\/p>\n

The result<\/p>\n

The court had to distinguish between commercial and personal activities in this case. Did Mr. Blecha intend to make a profit? Did he do so by embracing objective standards of commercial-like behaviour?<\/p>\n

The court will look at the following factors to determine whether you\u2019re conducting commercial-like behaviour: (1) the profit and loss record in prior years; (2) your experience and training in the activity; (3) your actual conduct in pursuing the activity; and (4) the capability of the activity to show profit.<\/p>\n

In Mr. Blecha\u2019s case, he charged his mother less than fair market rents. He argued that the property had damage and needed repairs, so the lower rent was justified. The court didn\u2019t buy it. <\/p>\n

Also, the receipts he issued to his mother for rent paid had \u201cdeficiencies and oddities\u201d (yes, the small paperwork matters). In addition, his mother did not pay for personal utilities such as phone and cable television notwithstanding her low rent, there was no provision in the lease allowing Mr. Blecha to occupy one of the bedrooms for storage or weekend stays (even though he did), there was no rent increase notwithstanding considerable improvements to the property made while she lived there and when his mother passed away, Mr. Blecha didn\u2019t rent the property to anyone else. <\/p>\n

In the end, the court ruled that \u201csuch an arrangement, while quite laudable and loving, is not a business venture undertaken in pursuit of profit. Instead, it was quite personal.\u201d <\/p>\n

The moral<\/p>\n

What can we learn from Mr. Blecha\u2019s story? If you\u2019re going to rent a property to family or friends, or carry on any business activity, make sure you can demonstrate commercial-like behaviour. The little details like lease agreements, fair market rent, advertising your activity or property, are important. This way, any losses incurred should be allowed.<\/p>\n

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"My father owns a rental property in the Niagara region. This week, he visited one of the tenants…\n","protected":false},"author":2,"featured_media":69323,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-69322","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/69322","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=69322"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/69322\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/69323"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=69322"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=69322"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=69322"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}