Maximize Your Rental Profits: Tax Compliance Tips for Short-Term Rentals

New Tax Regulations for 2024

In late 2023, the Federal government announced new rules that will deny income tax deductions for expenses by non-compliant operators of short-term rental properties (such as Airbnb or VRBO properties rented for less than 90 days). These rules apply to individuals, corporations, and trusts starting January 1, 2024.

Definition of Non-Compliant Short-Term Rentals

A short-term rental is considered non-compliant if:

  • The local province or municipality does not permit the operation.
  • The rental does not meet all required registration, licensing, and permit regulations.

Impact of Non-Compliance

Operators of non-compliant short-term rentals will be taxed on their gross rental revenue without any deductions. For example, if a rental incurs $100,000 in expenses but only generates $20,000 in profit, all expenses will be denied, resulting in a taxable profit of $120,000. This could lead to substantial tax liabilities, especially for those in higher tax brackets.

Partial-Year Compliance

If a property is non-compliant for part of the year and compliant for another part, expenses will be prorated. For instance, if a property was non-compliant for 62 out of 184 days of short-term rental use, a portion of the expenses will be non-deductible.

Transitional Rule for 2024

For the 2024 taxation year, if the taxpayer complies with all registration, licensing, and permit requirements by December 31, 2024, they will be deemed compliant for the entire year, allowing for full expense deductions.

Action Steps

Ensure you comply with all municipal and provincial regulations by December 31, 2024, to retain your deductions for short-term rentals.

Secure Your Rental’s Financial Future

Ensure your short-term rental complies with all municipal and provincial regulations by December 31, 2024, to retain your expense deductions.
Contact C. Ralph & Associates for expert guidance on navigating these new tax rules and securing your financial future.