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Person X wants to earn some extra cash

  1. They rent out their condo for $1400 a month.
  2. They need somewhere to live now, so they rent a basement suite for $1000 a month
  3. Now they make $400 a month profit

Are you allowed to deduct the $1000 from $1400?

If you can't, they will actually lose money from this setup, since the $1400 you earn is taxable.

  • So, you’re renting to yourself? Charging yourself $1000 a month for a place you own? – Corey P May 1 '19 at 18:48
  • No. I own a condo and a rent that out to another couple, charging them $1400. Now that I rented my place out, I need a place to live, so I rent out a basement suite from someone else. They charge me $1000. – Aducci May 1 '19 at 18:50
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Are you allowed to deduct the $1000 from $1400?

No, you can only deduct from the $1,400 of rental income those expenses that are related to the rental activity.

If paying a mortgage you could deduct the mortgage interest, and you could deduct insurance, HOA fees, property taxes, repair costs, etc.

You'd also depreciate the condo and deduct that expense from your rental income.

It could be a financially beneficial situation still, depending on how much it costs you per month to live in the condo, but it isn't likely a good way to increase cash on hand.

Edit: I did not notice the Canada tags when answering, in general the answer holds true, but it'd be capital cost allowance instead of depreciation expense and appears to be optional.

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