Tax Question Asked by: Andrea J. Marie
I have a condo that I use as an AirBNB in Toronto. I am recently told that I cannot claim any tax deductions against the rental income that I am generating from this Condo. Can you clarify this?
Disclaimer: This is not tax advice. The answer below is for general purposes. Please exercise caution while making any decision based on this post or any other post on this website. This question may have been rephrased to correct some of the technical terms. The rephrased questions are often more helpful to a wider range of readers.
Taxes on Short-Term Rentals in Canada
AirBNB falls under the short-term rentals. The limit on tax deductions that you are mentioning is for Noncompliant short-term rentals!
Generally, when you drive business income or rental income in Canada, you claim all the deductions for the expenses you incurred while generating that income.
Many would argue that short-term rentals, spiked by Airbnb, are one of many causes of the housing market crisis in Canada. From the federal underused housing tax to vacancy taxes by municipalities, almost all levels of government bodies are adopting measures to curb the housing shortage.
In an effort to address housing affordability and supply shortages in Canada, the federal government introduced measures in its 2023 Fall Economic Statement and implemented them via the 2024 Federal Budget through Bill C-69. These measures, effective from January 1, 2024, prohibit income tax deductions for expenses incurred on short-term rental properties deemed non-compliant.
What is a short-term rental?
The legislation defines a short-term rental as a residential property rented out for less than 90 consecutive days. (You will notice that it is not 30 days!)
Compliant or Non-Compliant – What are the criteria?
A property is considered non-compliant if:
- It is located in a province or municipality that prohibits short-term rentals.
- It does not meet all applicable registration, licensing, or permitting requirements mandated by local authorities.
Income tax consequences?
If an Airbnb, or short-term rental, is compliant, you can deduct all the eligible rental expenses incurred to generate short-term rental income. These expenses include interest on the mortgage, property taxes, insurance, utilities, management fees and other operating expenses.
For Non-Compliant short-term rentals, there is no such deduction available. In other words, the taxpayer will pay the income tax on the gross amount of rent.
Is there a Grace Period?
Yes, there is a grace period allowed. If you have a short-term rental, make sure you comply with all the requirements before December 31, 2024. If you manage to achieve compliance by the due date, the rental property is deemed compliant for the entire year, even if the short-term rental was non-compliant for part of the year.
You should:
- Regularly consult provincial and municipal regulations regarding short-term rentals, as these can vary significantly across jurisdictions.
- Obtain all necessary licenses, permits, and registrations required by local authorities to operate a short-term rental legally.
- Keep thorough records of compliance efforts, including applications, approvals, and communications with regulatory bodies.
Maroof HS CPA Professional Corporation specializes in income tax services in Canada. From income tax return preparation to income tax planning, we are here to help you navigate all the complexities and ever-changing tax laws.
