Beginning with the 2024 calendar year, CRA no longer allows expenses to be deducted for non-compliant short-term rentals. What does that mean? Glad you asked! Here are some base definitions:
- A short-term rental (STR) is defined by CRA as a rental property with a rental period of less than 90 consecutive days. (Note that different provinces/municipalities may define STRs differently)
- A “non-compliant” STR is defined as either
- Located in a province or municipality that does not permit STRs to operate; or
- Does not comply with all applicable provincial and/or municipal registration, licensing, and permit requirements for operating a STR.
A short summary of these regulations would read – if you are not compliant with municipal/provincial licensing requirements, CRA can deny ALL expenses related to your STR income.
If there was a change in compliance during the year (i.e. you received licensing part way through the year to become compliant), expenses can be partially deducted – pro-rated for the period of the year that the STR was compliant.
**Note that it does not matter when the expenses were incurred (during compliant or non-complaint periods) – expenses are strictly pro-rated based on the portion of the year where the STR was compliant.
The 2024 calendar year has transitional relief, which means that if the STR was deemed compliant by December 31, 2024, all expenses for the year are deductible, regardless of when the property became complaint during the year.
CRA information on the new rules can be found here.
As part of this initiative, CRA has also implemented new rules on digital platforms such as VRBO and AirBnB, which are now required to report information to CRA on an annual basis. This potentially includes the name, address, date of birth, tax identification number, address of the property, amount of rent received, etc. by the ‘Host’ or owner of each property on those services.
Digital platforms are responsible for ensuring the information they report is “reliable” and must report this information to CRA by January 31 for the preceding calendar year.
Information on new requirements for digital platform reporting can be found here.
What does this mean for you, someone who is renting property on a short-term basis, especially through a platform like AirBnB or VRBO?
It is now critical for tax purposes that you are compliant with your municipal and/or provincial regulations on STRs. This may include licensing, inspections, application fees, police checks, etc. Failure to be compliant could lead to all rental expenses being denied by CRA, which could have a significant tax cost.
Listed below is a summary of select local municipality STR regulations available at the time of writing. This list is not comprehensive and you should contact your municipality and/or province in order to ensure you are compliant with all necessary regulations:
- City of Guelph – STRs must be licensed. To obtain a license, you must live in the City of Guelph, you cannot be a corporation, and must complete the application through the City of Guelph – there is also an inspection as part of the application process. Licensing rules came into effect 12/1/2023.
- City of Waterloo – STRs must be licensed if they are in a low-rise residential building (single detached homes, townhouses, duplexes, apartments under three stories with more than four units). STRs must be the owner’s primary residence. These rules came into effect 1/1/2025, and enforcement will begin 5/1/2025.
- City of Kitchener – no current licensing or restrictions – council recently completed engagement with the community for input on a potential bylaw.
- Centre Wellington – Centre Wellington is currently soliciting engagement and feedback related to a report that was delivered to council in September 2024 regarding potential STR bylaws.
- City of Toronto – STRs must be owner-occupied (principal residence) – STR operators must register with the City of Toronto and collect and remit a 6% Municipal Accommodation Tax on all rentals.
