What are the Canada Federal Short-Term Rental Tax Rules (Budget 2024)?

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How it works

The rules function by linking an STR operator's federal tax afiling status to their compliance with local-level regulations. Effective for expenses incurred on or after January 1, 2024, the Canada Revenue Agency (CRA) will deny claims for rental-related expenses if the property is located in a prohibitive zone or if the host fails to provide proof of compliance.

This means if a city or province requires a license to operate, and the host does not have one, they cannot deduct any associated operating costs against their rental income. The responsibility to prove compliance rests with the taxpayer when filing their annual income tax return.

Why it matters

These federal rules create a significant financial disincentive for operating an illegal or non-compliant short-term rental. By making non-compliance significantly more expensive, the measure aims to encourage operators to adhere to local laws or return properties to the long-term housing market.

It represents a a key instance of federal tax policy being used to support and enforce municipal and provincial housing regulations, directly impacting the profitability of the STR sector across Canada. See the official website for current details.

Examples

• A host in Vancouver, BC, fails to obtain the required municipal business license for their primary residence STR. As a result, they are not permitted to claim expenses like cleaning fees, insurance premiums, or OTA service fees against their rental income.
• In Prince Edward Island, an operator who does not have the necessary Tourism PEI license for their property will have all their rental-related expense deductions disallowed by the Canada Revenue Agency.
• An operator in Banff, Alberta, where STRs are strictly limited to specific zones, runs a vacation rental in a prohibited residential area. Under the new federal rules, they cannot deduct their mortgage interest, property taxes, or heating costs on their federal income tax return.
• A property owner in a rural Ontario township that has recently implemented a mandatory registration system continues to rent their cottage without registering. Consequently, they lose the ability to claim capital cost allowance (depreciation) on newly purchased furniture and appliances for the rental unit.