Rent Expense
Rent paid for business premises is deductible under s.18(1)(a), with matching applied to prepaid rent and a reasonableness test applied to related-party rent.
Federal · Updated September 23, 2026
Definition
Reasonable rent for property used to earn business income can be deductible. Deduct the portion relating to the current fiscal period, separate personal use, and retain the lease and invoices. CRA business-expense guidance
Key rules
Prepaid rent covering a later tax year is generally deferred under section 18(9). A refundable damage deposit remains an asset until it is returned or applied; payment alone is not an expense.
Related-party rent must meet the income-earning and reasonableness tests. A written agreement is useful evidence but does not make an inflated amount deductible. Sections 18 and 67
Tax treatment depends on the legal arrangement and applicable tax rules. Financial-statement lease classification does not by itself determine the income-tax deduction. Separate purchases, financing arrangements and tenant improvements from ordinary rent.
Commercial rent is generally a taxable supply for GST/HST when the landlord must charge tax. Qualifying long-term residential rent is generally exempt; short-term or unusual arrangements can differ. A registrant claiming an ITC needs eligible commercial use and supporting documentation. Recoverable tax is a credit, not a second rent deduction. CRA GST/HST guide
Example
A registrant signs a 24-month taxable commercial lease on July 1, 2026 at $3,000 a month plus 5% GST. It pays first and last months' rent and a $6,000 refundable damage deposit. Assume a December 31 year-end, full commercial use and adequate ITC documentation.
July through December produces $18,000 rent expense and a separate $900 ITC. The $3,000 payment for the last month is prepaid rent until June 2028. The $6,000 deposit is a separate refundable asset. Do not deduct the $900 recovered GST again as rent.
If a related corporation instead charges $5,500 a month where $3,000 is the supported reasonable amount, the $2,500 monthly excess totals $30,000 for a full year and is not deductible on those assumptions. The recipient's income and any shareholder-benefit consequences require separate treatment; disallowance for the payer does not automatically erase income for the recipient.
Related concepts
Sources
- Income Tax Act s.18(1)(a)
- Income Tax Act s.18(9)
- Income Tax Act s.67
See also
Keep the books behind these numbers current.
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