Effective January 1, 2024, Canada has introduced new tax rules for short-term rentals, with transitional relief available for compliant taxpayers. If a taxpayer meets compliance by December 31, 2024, they will be deemed compliant for the entire year.
The transitional relief applies to individuals, corporations, and partnerships for the 2024 tax year. A short-term rental is defined as a residential property rented for less than 90 consecutive days, encompassing various types of dwellings.
In cases of non-compliance with provincial and municipal laws, the Canada Revenue Agency (CRA) will calculate denied expense deductions by multiplying incurred expenses by the proportion of days the property was non-compliant. Taxpayers are reminded to maintain accurate records for reporting rental income and claiming eligible expenses.
The CRA may conduct audits to ensure the accuracy of reported income and deductions. Additionally, the agency encourages reporting suspected tax evasion.
According to federal estimates, there are approximately 235,000 short-term rentals in Canada. In the 2023 fall economic statement, the federal government allocated $50 million over three years, starting in 2024-25, to enforce short-term rental regulations at the municipal level.
Last year, the Parliamentary Budget Officer projected that the new rules would generate an additional $170 million in income taxes over five years, with annual increases starting at $10 million in 2023-24 and reaching $41 million by 2027-28.