Property Owners Considering a Garden Suite
Before You Take On the Development Cost and Risk, Get Informed
A Basement Apartment is often the more cost-effective second unit to add, with quicker payback, easier resale and less tax headaches. It’s often labelled “stealth density” because home footprints remain the same, causing less disruption within neighbourhoods.
- A Garden Suite will add more property value in the long run and generate greater monthly income but resale can be much slower and payback much longer.
- If the goal is to sell after a few years, a basement apartment investment will pay for itself in 4-6 years whereas a Garden Suite will take 10+ years.
- Another consideration is competing with all other rental properties as development firms are pivoting to purpose-built rentals after the condo market has stagnated.
- Vetting and managing potential tenants can also be tough. In 2024-25, The Landlord Tenant Board filed over 70,000 applications by landlords with over 35,000 applications relating to tenant non-payment.
- Garden Suite homeowners also need to account for expenses such as insurance, maintenance, repairs, vacancy, possible property tax increases, vacancy allowance, utilities if they are included, and financing costs if the project is funded with borrowed money.
- Don’t be fooled by looking at what rent you can make annually. The key is to look at net income. For example, a garden suite with $30,000 in annual gross rent and approximately $8,000 in annual expenses would produce an estimated net income of $22,000 per year.
| Item | Basement Apartment | Garden Suite |
|---|---|---|
| Development Cost | $60,000 to $120,000 | $200,000 to $400,000 |
| Payback | 4 – 6 years | 10+ years |
|
Rental Income: Assume 1 BR but depends on location, TTC proximity, finishes, utilities, laundry |
$1,600 - $2,200/mo ($1,900 median) | $2,000 - $3,000/mo ($2,500 median) |
| Increased Property Tax | Modest | Yes |
| Tax implications |
Renting out a new basement suite in Toronto means you must report all rental income to the Canada Revenue Agency (CRA). You can offset this income with proportional home expenses, though building and renting the unit can impact your future capital gains taxes when you sell your house. Principal Residence Exemption (PRE): Normally, selling your home is tax-free. Adding a basement suite can jeopardize this if it triggers a "change in use" classification. Preserving the Exemption: To keep your whole house tax-free upon sale, the CRA requires that the rental use is secondary to your own home use, you do not make severe structural transformations that sever the title, and you do not claim Capital Cost Allowance (depreciation) on the suite. |
Once you rent out your Garden Suite, CRA may consider you a builder for HST purposes under Federal Tax Law. HST Tax of 13%: This will trigger a tax bill based on the fair market value of the suite once your first tenant moves in. For example, a garden suite valued around $400,000 when the first tenant moves in can trigger HST in the tens of thousands of dollars. Residential Rental Property Rebate (NRRPR): There are rebates that offset some of this expense but they must be filed on time via New Residential Rental Property Rebate (NRRPR) Self-supply: This is specifically tied to renting the unit as a supply of residential accommodation; a suite built for a family member to live in, rather than for a paying, arm’s-length tenant, generally does not trigger the same self-supply event, because there is no rental supply taking place in the way the rule contemplates. |
| Resale Value | Adds value in the range of $50,000 to $100,000 above what a finished basement without a kitchen would contribute. | Can add $200,000 to $350,000 to the assessed and market value, reflecting both the rental income stream and the physical asset of a separate building. |
| Resale Speed | Quicker resale as space is finished and can be repurposed if buyer doesn’t want to rent it out. Future buyers don’t lose out on a backyard or privacy. | Slower resale with smaller pool of interested buyers Many buyers don’t want to spend increased price point and forfeit a backyard, privacy or become a landlord. Could work for some people. |
| Privacy | A basement apartment means sharing your home with a tenant. | Your tenant lives in the backyard but you give up a portion of your backyard—typically 500 to 800 square feet of footprint, plus setback requirements. |
| Construction Build | 8 – 14 weeks | 5 – 8 months |
| Trees | N/A | Commission an Arborist Report (if trees are present) |
| Leases | Use a lease that complies with the Residential Tenancies Act, 2006 (RTA) | Use a lease that complies with the Residential Tenancies Act, 2006 (RTA) |
| Short-term Rental | Can be run from main home on property. | Cannot legally be run on a separate Garden Suite. |
| On-street parking | Additional permits for second vehicles cost more and are subject to local street space availability and wait-lists. | Additional permits for second vehicles cost more and are subject to local street space availability and wait-lists. |
| Hidden Costs | None |
Utility connections and upgrades: $4,000 – $8,000 Landscaping restoration: $2,000 – $5,000 Unexpected issues and changes: $3,000 – $8,000 |
| Insurance increase | Tenant responsible for own insurance | $600 – $1,200 |
| Maintenance/repairs 5-10% of rental income | $22,800 annual income at median of $1900 = $1,140-$2,280 | $30,000 annual income at median of $2,500 = $1,500-$3,000 |
| Vacancy allowance 1-2 months | $3,800 | $5,000 |