New Federal Tax Changes for Canadian Short-Term Rentals 

Disclaimer: This article on federal tax changes to short-term rentals is intended for the purpose of providing information only. Iis to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

In Ontario, the housing crisis looms large, with rental expenses soaring and homes in short supply. Despite efforts by many provinces and municipalities to place restrictions on short-term rentals like those on Airbnb and VRBO, the problem persists.

Changes Announced for Short-Term Rental Tax Deductions

As part of its fall economic statement in late 2023, the federal government announced new income tax measures. These came into effect as of January 1, 2024, and may impact you if you own a property that you rent out for short periods (generally defined as fewer than 28 days). Aimed at addressing housing inventory challenges and regulating the STR industry, these measures have sparked a mix of reactions within the cottage community.

In a nutshell, if you own a property in a municipality where such rentals are prohibited and rent it out for short periods of time, you will no longer be able to claim any expenses against your rental income. This also applies to short-term rental operators who fail to comply with applicable provincial or municipal licensing, permitting, or registration requirements; they will also lose tax benefits.

For example, suppose you own a cottage in a municipality that restrictions vacation rentals. You earn rental income from occasional stays. In such a scenario, the new tax measures mean that you will no longer be eligible to deduct any expenses associated with your rental income. These expenses typically include property taxes, mortgage interest, maintenance, utilities, and insurance. Similarly, if you earn short-term rental income but fail to adhere to local regulations, such as obtaining the necessary licenses or permits, you will also forfeit any income tax deductions for expenses incurred.

The reasoning behind this move is to discourage homeowners from using their rental properties in this way and promote the availability of housing for permanent residents.

Are Short-Term Rentals Permitted in Your Municipality? 

You may wonder – can I list my property on a rental platform in my municipality? Will I still be able to claim expenses related to this income? Below we will consider some municipalities and their bylaws.

Note: Please check with your municipality to ensure that there have not been any recent updates to their bylaws and requirements. 

Hamilton

Hamilton introduced a licensing pilot program for principal residence units in late 2023.

The term “principal residence unit” denotes a specific dwelling within a property where an individual resides and carries out their daily activities. This restriction on short-term rentals confines operators to obtaining only one license, which must correspond to their primary dwelling. Consequently, it prevents commercial or multiple listing operators from obtaining licenses for STRs.

Huntsville

Accommodation providers must ensure registration, while units will be inspected to ensure they comply with building codes. Any operator offering stays of fewer than 30 days must impose and collect Municipal Accommodation Tax (MAT). This 4% MAT applies exclusively to accommodation revenue, excluding additional charges such as cleaning fees, security deposits, or other taxes and fees.

Owen Sound

Effective March 1, 2024, short-term rentals within the City of Owen Sound are required to obtain licensing in accordance with the City’s Short-Term Rental Licensing By-law. These are restricted to the property of the operator’s principal residence, which serves as their primary address for bills, identification, taxes, and insurance.

Furthermore, short-term rentals are limited to operating for a maximum of 180 days per year and operators must maintain a detailed log. Additionally, operators are obligated to furnish each group of visitors with a visitor’s guide and a code of conduct. Lastly, owners must adhere to specific requirements, including the provision of a site plan, fire-safety plan, and parking management plan.

Collingwood

In Collingwood, short-term rentals (STRs) are currently prohibited, despite the prevalence of illegal operations. However, a bed and breakfast (B&B) business may be permissible under certain conditions, such as not occupying the entire gross floor area of a single detached dwelling unit. The municipality has proposed a new licensing system, intending to issue 200 licenses annually.

These licenses would be categorized into three types based on the nature of the unit. Entire-unit options would be subject to a maximum rental period of 180 days per year, and owners must apply and pay for a license annually, ensuring compliance with the bylaw, Ontario Building Code, and fire codes through inspections. Additionally, the property being rented out must serve as the owner’s principal residence.

Beeksma Law: Your Rural Real Estate Partners 

Prospective rural real estate buyers encounter a unique set of considerations that are different from urban property purchases. Beyond the basic aspects of location and property size, factors, like shared well agreements, septic systems, and zoning regulations, become crucial when deciding whether or not to purchase or retain an investment property.

Shared well agreements, for instance, necessitate a thorough understanding of the responsibilities and rights associated with communal water sources, ensuring equitable access and maintenance among multiple property owners.

At Beeksma Law, we have assisted many rural property owners in addressing the intricacies of such purchases, offering invaluable guidance to clients seeking to make informed decisions in this specialized market. With their depth of knowledge and commitment to client satisfaction, Beeksma Law stands ready to assist buyers in achieving their rural property ownership dreams. Reach out to them today to embark on a seamless journey towards rural real estate ownership.

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