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The short answer
For a Canadian resident building a house in Nigeria to rent out, the land and the construction costs are capital: they are not deducted from rent but form the property's cost, with the building (not the land) recovered over time through capital cost allowance. Interest, legal fees and property taxes during construction can be deducted only up to the rent the building earns in that period; the rest is added to the building's cost. Once tenants are in, repairs that restore the property are deductible running costs.
Building in phases is how most Nigerians abroad put up a house at home: buy the plot, raise the foundation one year, the walls the next, roof when money allows. For tax in Canada, each of those payments needs a label. Guide T4036 (rental income, modified 27 March 2026) supplies the tests.
The basic test
T4036 says a capital expense usually gives a lasting benefit, while a current expense recurs after a short period. Restoring a property to its original condition is usually current; improving it beyond its original condition is usually capital. Renovations and expenses that extend the property's useful life are usually capital. Value is a test of last resort. Applied to a new build, nearly everything before the first tenant moves in is capital, because you are creating the asset.
| Cost | Treatment | Why |
|---|---|---|
| Land, survey, title and consent fees | Capital, land | Land is not depreciable |
| Architect, approvals, building permit | Capital, building | Part of creating the asset |
| Foundation, blocks, roofing, plumbing, wiring | Capital, building | Lasting benefit |
| Borehole, fence, gate, generator house | Capital | Lasting benefit; may sit in their own classes |
| Interest and property taxes during construction | Soft cost: deductible up to rent earned, rest capital | T4036 soft-cost rule |
| Painting a let flat between tenants | Current | Restores, does not improve |
| Replacing a broken water pump with a like one | Usually current if part of the building; capital if a separate asset | T4036's repair vs separate-asset distinction |
Land and building are separate
T4036 says land is not depreciable and that the capital cost of a building excludes the land. Legal and accounting fees paid to buy a property are split between the two. Keep the plot's cost, and the fees tied to it, in its own column from the start; it never gives capital cost allowance and only comes back into the calculation when you sell.
Soft costs while you build
Interest on money you borrowed to build, legal and accounting fees, and property taxes during construction are soft costs. T4036 says soft costs tied only to the construction period may be deducted as current expenses, but only up to the rental income the building earned in that period; any excess, and other soft costs, are added to the capital cost of the building, not the land. In a typical phased build with no rent coming in, that means most soft costs go into the building's cost. If you borrowed against your Canadian home to fund the build, see using a HELOC to build in Nigeria and when that interest is deductible.
Capital cost allowance once the house is let
The building's cost is recovered through capital cost allowance. T4036 places most buildings acquired after 1987 in Class 1, at 4%, and in the year you acquire property you can usually claim on only half the net addition (the half-year rule), unless it qualifies for the accelerated investment incentive. Two limits matter for Nigerian rentals: CCA cannot create or increase a rental loss, and you do not have to claim it at all. CCA claimed can be recaptured as income when you sell, so claiming it defers tax rather than removing it.
Converting naira costs
A phased build means dozens of naira payments over years. Guide T4037 converts a property's cost at the exchange rate when acquired; for a build, convert each payment at the rate for its own date. The Bank of Canada's daily table, as at 23 October 2026, has no naira rate, so use one source that meets Folio S5-F4-C1's conditions and stick with it. Where you sent CAD and it was converted on the way, the transfer record shows the rate you actually got.
Worked example (illustrative figures only)
| Phase | Naira | Example ₦ per CAD | CAD |
|---|---|---|---|
| Plot and title, 2024 | ₦12,000,000 | 800 | 15,000 |
| Foundation and walls, 2025 | ₦30,000,000 | 1,000 | 30,000 |
| Roofing, finishing, borehole, 2026 | ₦33,000,000 | 1,100 | 30,000 |
| Building cost (excluding land) | ₦63,000,000 | 60,000 |
Rates are examples only. Check: 12,000,000 ÷ 800 = 15,000; 30,000,000 ÷ 1,000 = 30,000; 33,000,000 ÷ 1,100 = 30,000; building 30,000 + 30,000 = 60,000; land 15,000 stays separate.
Records, T1135 and rent
- Invoices or receipts for each phase, in your name, with the contractor's details.
- Photographs dated at each stage: they show what the money built.
- A schedule splitting land, building and separate assets.
- T4036 says to keep records for six years from the end of the tax year they relate to; for capital costs, that clock starts only when you sell.
The CRA's T1135 questions and answers count foreign rental property and vacant land toward the CAD 100,000 cost test. Rent, once it starts, goes on Form T776; see Lagos rental income on T776. For how the land purchase itself should be documented, see the paper trail for a Nigerian property.
Where Pryme fits
Paying contractors by transfer, not cash, gives you the dated record each phase needs. From a Pryme naira balance you can send to each contractor and generate a verifiable receipt through VerifyDoc.ai (receipts) for the build file. Naira deposits are held by a licensed Nigerian microfinance bank.
Questions people ask
Can I deduct the cost of building my house in Nigeria from rent?
No. Construction costs are capital. The building's cost is recovered through capital cost allowance once it is let; land gives none.
Is interest on a loan to build deductible?
During construction, interest is a soft cost deductible only up to rent earned in that period; the rest is added to the building's cost, per T4036.
Can capital cost allowance give me a rental loss?
No. T4036 says CCA cannot create or increase a rental loss.
Which exchange rate do I use for building payments?
Convert each payment at the rate for its date, using one consistent source; the Bank of Canada publishes no naira rate.
Sources
- CRA: Guide T4036, Rental Income (modified 27 Mar 2026) · accessed Oct 2026
- CRA: Guide T4037, Capital Gains 2025 (modified 11 Feb 2026) · accessed Oct 2026
- CRA: Income Tax Folio S5-F4-C1, Income Tax Reporting Currency (updated 27 Jun 2024) · accessed Oct 2026
- Bank of Canada: Daily exchange rates (table dated 23 Oct 2026) · accessed Oct 2026
- CRA: Questions and answers about Form T1135 (modified 19 Oct 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.