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Cash vs accrual for rental income: which does the CRA expect?

The CRA's rental income guide leans toward accrual. Cash is allowed only in a narrow case, so it helps to know the difference.

Not tax advice. This is general information, not advice for your situation. Date checked: October 23, 2026. Rules can change, so read the sources at the bottom.

What the CRA says

The CRA says that in most cases you calculate rental income using the accrual method. That means you report income in the period you earn it and deduct expenses in the period you incur them.

When cash is allowed

The CRA says you can use the cash method if you have almost no amounts receivable and no expenses outstanding at the end of the year. It is allowed when your net rental income or loss would come out almost the same under accrual. The cash method means you report income when you receive it and deduct expenses when you pay them.

An example, in numbers

This example is ours, not the CRA's. Rent of $1,800 for December is due December 28. The tenant pays on January 5.

  • Accrual: the $1,800 is December income, because that is when you earned it.
  • Cash: the $1,800 is January income, because that is when you got it.

The same works for costs. A $600 plumbing bill dated December 20 and paid January 10 is a December expense under accrual and a January expense under cash.

That is a one-month shift. If it happens every year, the CRA's test is whether the net result would be almost the same either way.

Post-dated cheques

If you use the cash method and get a post-dated cheque as security for a debt, the CRA says you include it in income when the cheque is payable.

Prepaid expenses

  • Accrual: you claim a prepaid expense in the year or years you get the benefit.
  • Cash: under cash, the limit applies only to amounts for a year two or more years after you paid, so a 12-month policy isn’t restricted. Check T4036 or ask a professional.

A premium that covers several years, paid all at once, is where the cash limit can apply.

Rent you cannot collect

The CRA says uncollectible rent applies only to accrual reporting. If you use the cash method, you should have no receivables, and so no bad debt to claim. Unpaid rent was never income in the first place.

A prepaid example

This one is ours too. You pay $1,200 on July 1 for a 12-month insurance policy. The benefit runs half in one year and half in the next. Under accrual, the CRA says you claim the prepaid amount in the year or years you get the benefit, so $600 goes in each year. Under cash, the limit above does not apply to a 12-month policy. Over time the net result is similar either way.

What stays the same

  • Your rental year ends on December 31 either way.
  • Mortgage principal is not deductible under either method.
  • You need receipts and contracts for either method.

Which should you track?

Do not guess. Track both dates for every line:

  • The date the rent was due and the date it arrived.
  • The date an expense was incurred and the date you paid it.

With both dates, you can show either method on the T776 without redoing your records. It also makes year-end easy: sort by due date, and you see what is still outstanding.

Year-end checks

  1. List unpaid rent as of December 31.
  2. List bills you owe as of December 31.
  3. If both lists are close to empty, cash may be allowed. If not, ask a tax professional before you pick.

Keep it consistent

Ask a tax professional before you switch methods. Keep receipts and bank statements for six years, as the CRA says.

One more point: the income and expense lines are the same either way. The choice changes when an amount lands, not which line it goes on. A simple log with a due date column and a paid date column lets you see the whole picture, and it is easy to hand to a tax professional.

Read next: landlord T776 basics.

Sources

Date checked: October 23, 2026. Not legal, tax or accounting advice. Rules change, so check the official pages before you act.

Want this in a ready-to-use tool? The tracker is a spreadsheet for rent received and expenses by property, laid out along the T776 lines. See the Canadian Landlord Rental Income and Expense Tracker (CA$24) or Get your kit.

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