Income Tax Act section 67.7 can deny expenses for the part of a tax year in which a short-term rental is non-compliant. Hosts need to check every provincial and municipal registration, permit, and licensing requirement that applies to the property.
What counts as a short-term rental
For section 67.7, a short-term rental is generally residential property offered for rent for a period of fewer than 90 consecutive days.
This federal definition is separate from local rules. A province or municipality may use a different number of days when defining short-term accommodation for registration or licensing.
When a rental is non-compliant
A short-term rental can be non-compliant when either of these applies:
- The province or municipality does not permit the activity at that location.
- The operator has not met an applicable registration, permit, or licensing requirement.
Local requirements can change. Check the current government website for the property, rather than relying on a general list of cities.
What the deduction restriction does
Section 67.7 restricts deductions for amounts paid or payable in connection with a non-compliant short-term rental. The calculation can depend on how much of the tax year the property was non-compliant.
The rule applies from January 1, 2024. For 2024 only, a rental that was compliant by December 31, 2024 is treated as compliant for the whole year.
Outside that 2024 transition, do not assume that obtaining a licence later automatically fixes an earlier non-compliant period. Keep the licence or registration, its effective date, renewal records, and correspondence with the relevant government.
The restriction does not remove the obligation to report rental income. It affects the expenses that may be deducted against that income.
Compliance checklist
For each property:
- Confirm that short-term rentals are allowed at the address.
- Identify every provincial and municipal registration, permit, and licence required.
- Confirm the effective and expiry dates of each approval.
- Follow principal-residence, zoning, occupancy, and listing-number rules where applicable.
- Retain government confirmations, renewals, insurance documents, and listing records.
- Separate compliant and non-compliant periods in your records.
Platform approval does not prove government compliance. A listing can be accepted by a platform and still fail a local requirement.
Income tax and GST/HST remain separate
Section 67.7 concerns income-tax deductions. GST/HST registration and collection use separate rules.
Short-term accommodation is generally taxable for GST/HST purposes. A person generally ceases to be a small supplier after exceeding $30,000 of worldwide taxable supplies in one calendar quarter or across four consecutive calendar quarters. Review the CRA registration rules for the effective date and collection requirements.
Correcting an earlier return
If you claimed expenses for a period that may have been non-compliant, do not assume that amending the return automatically prevents interest or penalties. Correction options and relief depend on the facts and the CRA program used.
Gather the property records, local rules, licence history, filed returns, and notices of assessment before speaking with a qualified tax professional.
Accountly can help you organize recorded income and expenses. It does not verify licence status or decide whether section 67.7 permits a deduction.
Frequently asked questions
Does section 67.7 use a 28-day or 30-day definition?
No. The federal income-tax definition generally covers residential property offered for rent for fewer than 90 consecutive days. Provincial, municipal, and GST/HST rules may use different periods for their own purposes.
Does section 67.7 apply when no local registration or licence is required?
The compliance test depends on applicable provincial and municipal rules. Confirm both whether the rental is permitted and whether any registration, permit, or licence is required.
Can I deduct expenses for a licensed part of the year?
The legislation provides a calculation for expenses connected with non-compliant periods. The result depends on the property’s facts and dates, so retain a clear compliance timeline and obtain advice for a part-year situation.
Does renting a room instead of an entire property avoid the rule?
Not automatically. The federal definition can cover all or part of a residential property. Local rules determine what is permitted and what approvals are required.
Can Accountly verify that my rental complies?
No. Compliance must be confirmed with the relevant provincial and municipal governments. Accountly can help organize the income and expense records you enter.
The information in this guide is for general informational purposes only and is not intended as accounting, tax, business, or legal advice. Accountly does not provide professional services or act as your accountant, tax advisor, or lawyer. No client relationship is created by your use of this material. Always seek advice from qualified professionals who understand your particular circumstances before acting on any information contained herein.