If you have any kind of short-term rental property, you will likely be impacted by these changes. Any property not properly registered in your local jurisdiction or properly licensed will be affected.
The Canada Revenue Agency (CRA) is focused on non-compliant short-term rentals with stricter reporting requirements and penalties. Here’s a summary of what’s changed and what to do if you operate a short-term rental.
1. Criteria for Non-Compliance of Short-Term Property Rentals
The CRA has outlined clear criteria for identifying non-compliant short-term rental properties. Properties will be considered non-compliant if they meet any of the following conditions:
- Local Prohibitions: If local regulations or municipal bylaws prohibit short-term rentals, the property will be deemed non-compliant if rented out.
- Permit and Licensing Issues: Properties lacking the required permits or licenses to operate as short-term rentals will also be flagged.
- Grace Period for 2024 Compliance: If you bring your property into compliance by December 31, 2024, it will be considered compliant for this tax year.
2. Denial of Expense Deductions Starting January 1, 2024 for Non-Comliant Short-Term Property Rentals
Starting January 1, 2024, short-term rentals that don’t meet the new compliance standards will lose the ability to deduct rental-related expenses. Here’s what this means:
- Taxpayer: Every taxpayer running a short-term rental, whether for a single property or multiple, needs to meet these standards.
- Revenue and Expenses: The CRA will assess your income as gross revenue, denying any deductions for operational costs.
- Focus on Residential Rentals: These rules specifically target residential properties rented for less than 90 days.
If your property is non-compliant, be prepared to report total earnings without the usual expense offsets. Consequently, properties that annually typically break even or lose money could now have to report significant income and incur the resulting tax burden.
3. Additional Reporting Requirements for Short-Term Property Rentals
The CRA is implementing stricter reporting requirements, with an increased ability to cross-reference information from rental platforms like Airbnb or Vrbo. Hosts must ensure all income is accurately reported on their tax returns to avoid penalties and interest charges.
Steps to Take Now if You Have a Short-Term Property Rental
Here’s how you can protect your deductions while adhering to CRA regulations:
- Check Local Laws: Confirm your property’s eligibility under local rules, and secure any permits needed.
- Document Income and Expenses: While deductions may be off the table for some, detailed records are still essential for reporting and future claims.
- Seek Professional Advice: If you’re unclear on these updates or how they apply to you, a tax advisor can help you navigate the changes smoothly.
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KWB Accountants & Advisors offers proactive advice and guidance to help you navigate new and changing CRA requirements, simplify your accounting, improve your profit, and achieve your goals. Book an introductory meeting to become a KWB client!
