Capital expenditures are expenses incurred to acquire rental property, improve property or make an addition to property. In general, such expenditures are not deductible in the calculation of rental income and must be added to the capital cost of the property.

Capital expenditures you cannot deduct in the year

Expenditures that cannot be deducted in the taxation year they were incurred, but must be included in the capital cost of your rental property include:

• the acquisition cost of the property
• legal and engineering fees, and other expenditures related to the purchase of the property (transfer duties, relocation costs, etc.)
• the purchase price of items rented out with the property (such as the stove, refrigerator or furniture in a furnished apartment) and replacements 
• the cost of adding a fireplace (this is a capital expenditure because it increases the normal value of the property)
• the cost of adding a garage (this is a capital expenditure because it creates new property)
• the cost of necessary repairs or renovations before a newly purchased older property can be rented (such work restores the property to its normal value, if it was purchased at a price that is less than its normal value)

All these expenditures (but not the cost of the land) increase the capital cost of the rental property and can give entitlement to capital cost allowance (CCA) calculated in form TP-128-V, Income and Expenses Respecting the Rental of Immovable Property.

Capital expenditures you can deduct in the year

You can deduct certain capital expenditures in the calculation of your income for the year in which they were incurred, instead of adding them to the capital cost of the rental property.

Eligible renovation or alteration expenditures to improve access to a building

You can deduct any amount paid in the year for renovations or alterations to a building that you use mainly to earn income if the renovations or alterations are made to:

• meet the needs of persons with disabilities
• help people with mobility impairments to access or move around the building

Alterations to meet the needs of persons with a physical impairment

You can deduct expenditures incurred to meet the needs of people with a physical impairment. Such expenditures must relate to the acquisition or installation of:

• floor indicators for an elevator car (braille panels or audible signals) intended for people with a visual impairment
• visual fire alarms
• listening devices or telephones intended for people with a hearing impairment
• computer software or equipment for certain people with limitations

Alterations to help people with mobility impairments

You can deduct expenditures incurred to renovate or alter a building to allow an individual with a mobility impairment to access the building or move about inside it. Eligible renovations or alterations include:

• the installation of a manually controlled electric door opener
• the installation of ramps inside and outside the building
• the alteration of a bathroom, an elevator or a door to facilitate the use thereof by a person in a wheelchair

If you use a rental property primarily to earn income and you incur such expenditures, you must complete the Eligibility Certificate for Renovation or Alteration Expenses (form TP-157-V) and keep it for your files.

For more information, see Business and Professional Income (IN-155-V) and Individuals and Rental Income (IN-100-V).