Co-Owning a Rental With Your Spouse: Whose Tax Return the Rent Belongs On, and When the Attribution Rules Pull It Back

The split you give the lawyer before closing sets the starting point. Whose money paid for each share decides whether that split holds.

I’m Arthur Zhao, a Toronto real estate Broker. A few days before a closing, the buyers’ lawyer asks a question that sounds simple: how will you take title? The couple looks at each other, one of them says “half each,” and the lawyer writes it down.

That answer does more than record who owns the house. It becomes the starting point for how the rent is reported on two tax returns every year after you get the keys. It is only the starting point, though. The Income Tax Act asks a question nobody asked at the lawyer’s desk: whose money paid for each half? If one spouse funded the other spouse’s share, the attribution rules can move that share of the rental income, or of the loss, back onto the funding spouse’s return.

Below I take it in the order you will meet it: before closing, every year you own the property, and when the relationship or the family changes.

Before closing: the title split is your reporting starting line

According to CRA’s T4036 Rental Income guide (2025), “the person who owns the rental property has to report the income or loss,” and a co-owner’s share of the rental income or loss “will depend on your share of ownership.” The guide uses owning a rental with your spouse or common-law partner as its example of a co-owner, and it says that co-owning a rental property as an investment does not make a partnership.

Two things follow from that. First, the percentage each of you reports should be the same every year unless the ownership percentage changes. Second, title also controls the mortgage interest: T4036 says the owner is the only one who can use the related interest expense, even if someone else guaranteed the loan or mortgage. So the split you give the lawyer is not a formality. It is the percentage you will be reporting from.

Before closing: where each spouse’s share of the money comes from

Section 74.1(1) of the Income Tax Act looks past the title. If an individual has transferred or lent property to a spouse or common-law partner, “either directly or indirectly, by means of a trust or by any other means whatever,” the spouse’s income or loss from that property, or from property substituted for it, is deemed to be the individual’s. It applies for the part of the year in which the two are spouses and the individual is resident in Canada.

The section never uses the words “down payment.” But if one spouse uses their own money to pay for the other spouse’s share, that payment can be treated as a transfer or a loan under s.74.1(1), and the rent and losses on that share can follow it back to the spouse who paid. If instead each of you pays for your own share from your own income or savings, and each carries your own share of the mortgage, there would be no transfer between you for the rule to catch, and reporting by title share would be what remains. The Act does not state that second case directly; it is my reading of how the two rules fit together.

There is also a fair-market-value route in s.74.5(1): attribution does not apply where the transferring spouse receives consideration worth at least as much as the property transferred, with conditions on any debt taken as consideration and, between spouses, an election in the transferor’s return not to have s.73(1) apply. Raise that one with an accountant before closing, not after.

Before closing: if the money is a loan, set it up the way s.74.5(2) describes

If one spouse is lending rather than giving, the Income Tax Act (Justice Laws, current to 2026-09-30) has a specific exception. According to s.74.5(2), it switches off s.74.1(1) and (2), and s.74.2, for income, gain or loss from the lent property in a given year, but only when all three conditions hold:

• (a) The rate. Interest is charged at a rate at least equal to the lesser of the prescribed rate in effect when the loan was made and the rate arm’s-length parties would have agreed on at that time.
• (b) This year’s interest. The interest payable for the year is paid no later than 30 days after the end of that year.
• (c) Every earlier year’s interest. The interest payable for each preceding year was paid no later than 30 days after the end of that year.

Look at the time anchor in (a): the test uses the rate at the time the loan was made, not whatever the rate is in later years. I am not quoting a prescribed rate figure here. Confirm the rate in effect on the day the money is advanced with your accountant, and agree the rate and payment terms before the money moves.

Every year you own it: each co-owner reports their own share

On Form T776, a co-owner enters their share of the line 9369 amount at amount 2, based on their share of ownership, and also fills in Part 2, Details of other co-owners and partners. That is the T4036 starting point in practice.

Where attribution applies to a spouse’s share, s.74.1(1) deems the income or the loss from that share to be the funding spouse’s. A rental loss on a funded share does not stay with the spouse whose name is on that half of the title, any more than a profit would. How that is shown on each return is a question for your accountant.

Every year: the interest payment that keeps a spousal loan working

If a share was financed with a spousal loan under s.74.5(2), the borrowing spouse has to actually pay the interest for each year no later than 30 days after that year ends. Condition (b) checks the current year and condition (c) checks all the years before it. If your taxation year is the calendar year, that window starts on January 1 and closes 30 days after December 31.

The interest has to be paid, not just accrued or written down as owing. Both (b) and (c) use the word “paid.”

Every year: when money from one spouse goes onto the other’s mortgage

Attribution is not limited to the purchase. Section 74.1(3) covers lent or transferred property that is used to repay, in whole or in part, borrowed money with which other property was acquired, or to reduce an amount payable for other property. In that case, a proportion of the income or loss from the other property is included: the proportion that the fair market value of the money used is of the cost of the other property to the person who received it.

Applied to a co-owned rental, this reads as a conditional: if one spouse gives or lends the other money and it goes onto the other spouse’s share of the mortgage, a proportion of the rent on that share may be pulled back to the spouse who supplied the money. The section speaks in general terms. How CRA allocates jointly made mortgage payments between spouses is not covered here, so ask your accountant how it applies to the way your household pays the mortgage.

When the relationship changes: separation, a sale, new ownership shares

Separation. Under s.74.5(3)(a), s.74.1(1) does not apply to income or loss from the property for the period throughout which you are living separate and apart because of a breakdown of the marriage or common-law partnership.

Sale. When the property is sold, the capital gain or loss has its own attribution rule in s.74.2, which this article does not cover.

New shares. T4036 ties the reporting percentage to ownership, so if the ownership percentages change, the reported shares change with them. If the change happens because one spouse moves part of their share to the other, that move can itself be a transfer of property under s.74.1(1). Have it reviewed before the paperwork is signed.

When the family changes: a child on title

Section 74.1(2) runs the same attribution for property transferred or lent to a person under 18 who does not deal with you at arm’s length, or who is your niece or nephew. It applies unless that person has turned 18 before the end of the taxation year. For reporting rental income between family members, T4036 points readers to Interpretation Bulletins IT-510 and IT-511.

Your checklist

Two moments in the life of a spousal co-ownership where these rules are decided.