STR:  What Residential Property Owners Need to Be Audit Proof

Evelyn Jacks

The federal government has introduced legislation to disallow the claiming of all expenses against rental income produced through non-compliant short-term rental ventures as of January 1, 2024. This applies to those who earn income through short-term rental platforms like Airbnb or VRBO. How can taxpayers ensure their short-term rentals become and remain compliant?  This is important because of the vast new audit powers CRA has in this regard. 

Property Definition.   Properties affected could include all or part of a house, apartment, condo, cottage, houseboat,  mobile home, trailer, or other property located in Canada. 

Note the CRA will be able to assess or reassess tax, interest and penalties for any taxation year after 2023, without restriction – that is, without being constrained by the normal reassessment periods.

Becoming Compliant.  Non-compliance short-term rental can become compliant as follows:

• the short-term rental is located in a province or municipality that requires registration, a license or a permit to operate as a short-term rental; and
• the short-term rental complies with all registration, licensing and permit requirements on December 31, 2024. (for 2024 only the property will be deemed compliant for the year)

Proration.  It is possible to prorate the expenses for the time the property was compliant.

Costs of the program.  The Parliamentary Budget Officer estimates that this provision will raise $170 Million for the federal government over 5 years.  

However, this will be a net $120 million as the government intends to spend $50 million over three years, starting in 2024-25, to launch a Short-Term Rental Enforcement Fund (STREF) with municipalities who have an existing strict short-term rental regulatory regime in place. 

This is  defined by Finance Canada as including, at minimum:

• An existing principal residence requirement limiting short-term rental operation to principal residences and a licensing system for short-term rental operators;
• An enforcement and compliance program for their short-term rental regulatory regime; and,
• One additional existing regulation from this list:
  • Short-term rental licensing/registration process requiring a proof of consent from condo corporation/strata and property owners for a unit to be used as short-term rental
  • Spatial rules, quotas or moratoriums to restrict short-term rentals to specific zones, neighbourhoods or blocks, limit the number of units within those zones, neighbourhoods or blocks, as well as suspend or restrict issuing of short-term rental licenses
  • Enforcing a night cap on bookings to restrict the maximum number of consecutive days that a unit can be rented and/or the total number of days per year that a unit can be rented as a short-term rental
  • Establishing accountability measures for platforms, including mandating short-term rental platforms to obtain a license to operate, to share data with enforcement personnel or to remove non-compliant listings

Bottom Line.  It’s important to fall in line with these new rules starting with the 2024 tax filing year.  Tax professionals and any residential property owner who has collected rent on a short term basis in 2024 (that’s for periods of less than 90 days) should be concerned about these income reporting changes.