This newsletter will discuss two important matters for owners and operators of short-term rental properties:

1. New rules that can deny rental expenses for non-compliant short term rental properties; and
2. The New B.C. Short-Term Rental Registry

Short-Term Rental: Denial of Tax Deductions in Calculating Rental Income for Income Tax Purposes

The 2023 Fall Economic Statement introduced the short-term rental deduction denial rules “to crack down on short-term rentals which are keeping too many homes off the market”. Effective for 2024 and future years, a tax deduction for expenses incurred in respect of a short-term rental property will be denied to the extent that the property is a “non-compliant short-term rental” during a taxation year.

A summary of the rules are as follows:

• A “short-term rental” means a residential property that is rented or offered for rent for a period of less than 90 consecutive days.
• A “non-compliant short-term rental” means a short-term rental that is located in an area that does not permit short-term rentals or that does not comply with provincial or municipal registration, licensing and permit requirements.
• A “non-compliant amount” of expenses with respect to the short-term rental property will be denied based on the number of days in a taxation year that the residential property was a “non-compliant short-term rental”.

For example: A short-term rental operator that fails to complete the new B.C. short-term rental registry described below would be a “non-compliant short-term rental”. For income tax purposes, a portion or all of the expenses related to the short-term rental property may be not deductible as a result of the provincial non-compliance.

For 2024, transitional relief is available to allow a full deduction of the expenses if the short-term rental property complies with all provincial and municipal registration, licencing or permit requirements by December 31, 2024.

It should also be noted that the denial of the tax deduction for expenses related to a short-term rental property may be determined by the Canada Revenue Agency (“CRA”) at any time. There is no time limitation for CRA to reassess, so this part of your tax return will never be statute-barred from reassessment by CRA.

In summary, taxpayers who are short-term rental operators must ensure they are in compliance with all provincial and municipal registration, licencing and permit requirements. Otherwise, a portion or all of the related expenses of the short-term rental property may be not deductible for income tax purposes. Taxpayers that are uncertain if all provincial and municipal registration, licensing, and permit requirements are met should consult a real estate lawyer.

Changes to Form T776, Statement of Real Estate Rentals

On January 31, 2025, the CRA released revised Form T776, Statement of Real Estate Rentals. The form was revised to require individual taxpayers to report the rental income and expenses separately between long-term rentals and short-term rentals. The form also provides a calculation for a “non-compliant amount”, if any, with respect to non-deductible expenses for a “non-compliant short-term rental” property.

For the upcoming 2024 personal tax season, individual taxpayers with a short-term rental property will need to:

1. provide revenue and expense information separately for their short-term and long-term rental properties; and
2. advise whether their short-term rental property is in compliance with all provincial and municipal registration, licencing and permit requirements. If not, they will need to advise of the number of days that their short-term rental property was non-compliant.

New B.C. Short-Term Rental Registry

On January 20, 2025, the Province of B.C. launched the new short-term rental registry.  

All short-term rental hosts, platforms, and strata hotel platforms operating in B.C. must register with the Province by May 1, 2025 and pay the annual fee. Registrations must also be renewed annually. Hosts who register early will receive:

• a 50% discount on fees if they register by February 28, 2025, or
• a 25% discount on fees if they register by March 31, 2025.

Hosts who do not comply will:

• have their listings taken down, starting May 1, 2025; and
• have future bookings cancelled, starting June 1, 2025

Exemptions from registration for short-term rental hosts may be available in certain situations. 

More information can be found on the Province of B.C.’s “short-term rentals” website below or from your real estate lawyer:  https://www2.gov.bc.ca/gov/content/housing-tenancy/short-term-rentals  

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