Your Rental Sat Empty Between Tenants: Can You Still Deduct the Mortgage Interest, Property Tax and Utilities?

CRA’s rental guide writes a vacancy-period rule into exactly one expense line. Here is that line, and what every other expense falls back on.

I’m Arthur Zhao, a real estate Broker in Toronto. Of the rental expense lines in CRA’s Guide T4036 that matter here, one states a period rule: Line 9180, property taxes, which lets you deduct the tax you incurred “for the period it was available for rent.” The other lines covered below do not carry that wording. They go back to the principle at the start of the guide’s Chapter 3: “You can deduct any reasonable expenses you incur to earn rental income.”

So there is no single yes-or-no answer for an empty unit. This article goes line by line: interest, utilities, property tax, advertising and insurance, and then the point at which the gap stops being a rental question and becomes personal use.

Interest: Line 8710

According to CRA Guide T4036 (Rev. 25), Line 8710 covers the interest charge on money you borrow to buy or improve your rental property. The test in the Income Tax Act sits in s.18(1)(a): no deduction for an outlay or expense “except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property.”

Neither the Line 8710 text nor s.18(1)(a) refers to whether a tenant happens to be in the unit. My inference, not a rule written in the guide: if the property is still a rental you are trying to lease, the borrowing that bought it has not changed purpose just because one lease ended. That reading has limits, and they come from the rest of this article.

The limit T4036 does spell out is refinancing. The guide’s own question-and-answer example says that when refinanced money goes to personal use, the interest on that additional amount is not deductible. What counts is where the borrowed money went, not which property secures the loan.

Utilities: Line 9220

Line 9220 lists gas, oil, electricity, water and cable, and attaches a condition: you can deduct them “if your rental arrangement specifies that you pay for the utilities of your rental space or units.”

If your lease puts utilities on you as the landlord, an empty stretch does not change who the arrangement says pays. The guide text quoted here does not deal with the other case, where the lease is silent or puts utilities on the tenant and you end up paying the bills while the unit is vacant. I am not going to guess at an answer for that one. Bring the lease to your accountant.

Property tax: Line 9180

According to T4036, “You can deduct property taxes you incurred for your rental property for the period it was available for rent.” This is the one line among these where the guide writes the vacancy question into the rule itself: the measure is availability for rent, not occupancy by a tenant.

The same line points readers to two other parts of the guide, Vacant land and Construction soft costs. Both deal with different facts from a house or condo sitting between leases; the section on rules that do not fit this situation explains why. The quoted text does not define what “available for rent” requires in practice, so how it applies to your dates is a question for your accountant.

Advertising and insurance: Lines 8521 and 8690

Line 8521, advertising. T4036 allows advertising costs and specifically includes a finder’s fee. Listing the unit and paying someone to find the next tenant are costs aimed squarely at earning rental income.

Line 8690, insurance. You can deduct the premium for the current year. If you prepaid a policy covering more than one year, only the part for the current year goes on this year’s return. Neither line, in the text quoted here, says anything about vacancy.

When the gap becomes personal use

T4036 says the personal-use portion of your expenses goes on Line 9949 and is not deductible. The guide also states: “You cannot claim the expenses for renting part of your property if you have no reasonable expectation of making a profit.” Underneath both sits ITA s.18(1)(h), which bars a deduction for “personal or living expenses of the taxpayer.”

Read together, and this is my inference rather than wording from the guide: if you moved back in for part of the gap, or let someone live there without a rental arrangement aimed at profit, the costs for that stretch would fall on the personal side of the line. If the unit was empty and on offer to tenants, the property tax line points the other way. Where your facts sit between those two, the dates matter, and an accountant should apply the rules to them.

Two rules that are not about this situation

Construction and renovation periods. If the unit was empty because you were renovating or altering it, ITA s.18(3.1) sets a separate rule for costs attributable to the period of construction, renovation or alteration. That is a different question from an ordinary vacancy, and another article on this site covers it.

T4036’s Vacant land section. This part of the guide is about land with no building on it, not an empty rental home. For vacant land that earns rent, interest and property tax can only be deducted up to the point the rental income is zero, so they cannot create a loss. For vacant land with no income at all, the guide says the interest and property tax cannot be deducted and cannot be added to the land’s adjusted cost base. None of that applies to a house or condo that is between tenants.

What T4036 writes into the line vs what rests on the general principle

Before you claim expenses for a vacant stretch

This is general information about what the guide says, not tax advice for your return.