Stop before you file. If your city requires a short-term rental licence and you don’t have one, the CRA can deny every single expense deduction on your rental income. Not some of them. All of them.
This isn’t a technicality. It’s Section 67.7 of the Income Tax Act, effective January 1, 2024, and it’s already catching hosts off guard this tax season.
What Section 67.7 actually says
The rule is blunt: if you operate a short-term rental in a province or municipality that requires registration or licensing, and you don’t have that licence, no expenses are deductible against that rental income. Zero.
That means you can’t deduct:
- Mortgage interest
- Property taxes
- Insurance premiums
- Cleaning and maintenance fees
- Platform service fees (Airbnb, VRBO)
- Utilities, supplies, furniture depreciation. None of it
Your gross rental income becomes your taxable rental income. The full amount.
Which cities are affected
Section 67.7 applies anywhere a provincial or municipal government requires STR operators to register or obtain a licence. As of 2026, that includes:
- Toronto: Municipal Licence required, registration with the city
- Vancouver: Business licence + STR licence required
- Montreal: CITQ classification number required
- Ottawa: Short-term rental licence required
- Victoria: Business licence + STR permit
- Niagara Falls: STR licence required
- Mississauga, Brampton, Hamilton: bylaws enacted or pending
This list is growing. If you’re unsure, check your municipality’s website directly. “I didn’t know my city required one” is not a defence the CRA will accept.
The financial impact in real numbers
Here’s a simplified example of how much this costs you.
| With STR Licence | Without STR Licence | |
|---|---|---|
| Gross rental income | $45,000 | $45,000 |
| Deductible expenses | $28,000 | $0 |
| Taxable rental income | $17,000 | $45,000 |
| Tax owed (30% marginal rate) | $5,100 | $13,500 |
That’s an $8,400 difference, and the gap only widens if your expenses are higher or your marginal rate is above 30%. At a 40% marginal rate, you’re looking at over $11,000 in extra tax.
For hosts with multiple properties or higher revenue, Section 67.7 can turn a profitable operation into a net loss after tax.
”I didn’t know I needed a licence”
Not a defence. The CRA doesn’t care whether you were aware of your municipal bylaws. The law is clear: if the requirement exists and you didn’t comply, your deductions are gone.
But you still have decisions to make for this tax year:
- File deductions anyway and risk reassessment. If the CRA audits you and finds you were unlicensed, they’ll deny the deductions and charge interest on the difference. Possibly penalties too.
- File without deductions and pay the higher tax. Painful, but it avoids the reassessment risk and potential penalties.
Neither option is great. The real move is to get compliant before next year so this isn’t a problem again.
Get compliant now: the checklist
Don’t wait until next filing season. Start this process today:
- Check your municipality’s requirements. Search “[your city] short-term rental licence” or call your municipal office. Requirements vary; some cities need a business licence, others have a separate STR permit, and some require both.
- Apply for the licence. Processing times range from a few weeks to several months depending on the city. Toronto, for instance, requires a fire inspection. Vancouver requires proof of principal residence. Start early.
- Get proper insurance. Many municipalities require proof of commercial or STR-specific insurance as part of the licence application. Your standard homeowner’s policy likely doesn’t cover short-term rental activity.
- Display your licence number. Most platforms (Airbnb, VRBO) now require you to enter your registration number on your listing. Some cities actively audit listings that don’t display one.
- Keep your documentation. Save your licence confirmation, insurance certificates, and any correspondence with the municipality. You’ll need these if the CRA ever asks.
Retroactive risk: CRA can go back years
Section 67.7 took effect on January 1, 2024. That means the CRA can reassess your 2024 and 2025 returns if you were operating without a licence in those years.
And it gets worse. The CRA’s standard reassessment window is 3 years from the date of your original notice of assessment. But if they determine there was “neglect, carelessness, or wilful default,” that window extends to 6 years. Operating an unlicensed STR when your city clearly requires one could easily qualify.
If you claimed deductions on unlicensed rental income in 2024 or 2025, consider whether a voluntary disclosure to the CRA might be the safer path. Talk to a tax professional about your specific situation.
How GST/HST fits in
Section 67.7 deals with income tax deductions, but don’t forget the GST/HST side. If your total taxable revenues (including STR income) exceed $30,000 in a rolling 12-month period, you’re required to register and collect GST/HST regardless of your licence status. We covered this in detail in our GST/HST registration guide.
The licence issue and the GST/HST issue are separate obligations. Getting one right doesn’t fix the other.
Track it properly from the start
The hosts who get burned by Section 67.7 are usually the ones who weren’t tracking things properly to begin with: no organized records, no licence on file, expenses scattered across bank statements and shoebox receipts.
Accountly verifies your licence status before generating tax forms, so you know whether your deductions will hold up before you file. It also tracks rental income by property, categorizes expenses automatically, and flags issues like the $30,000 GST/HST threshold before they become surprises.
If you’re running a short-term rental as a side business or your main income, this is the kind of thing that’s worth getting right from day one. For more on how the CRA treats different gig and platform income, check out our gig worker tax guide and our freelance taxes 101 overview.
Frequently asked questions
Does Section 67.7 apply if my city doesn’t require an STR licence?
No. Section 67.7 only applies where a provincial or municipal government has enacted a requirement for short-term rental registration or licensing. If your municipality has no such requirement, your deductions are unaffected. But check carefully, because new bylaws are being passed regularly across Canada.
What counts as a “short-term rental” under Section 67.7?
The provision targets rentals of 28 consecutive days or fewer. If all your rentals are 29 days or longer, Section 67.7 doesn’t apply. Some hosts have shifted to minimum 30-day stays specifically to avoid this rule, though that changes the economics of the rental significantly.
Can I deduct expenses for the portion of the year I was licensed?
The CRA’s guidance suggests that deductions are only available for periods during which you held a valid licence. If you obtained your licence partway through the year, you may be able to prorate your deductions for the licensed period. Keep clear records of your licence effective date.
I rent out a room in my home on Airbnb. Does this apply to me?
Yes, if your municipality requires a licence for short-term rentals and you’re renting for periods of 28 days or fewer. The rule applies whether you’re renting an entire property or a single room. Many cities (Toronto, Vancouver) do have principal-residence exemptions in their bylaws, but you still typically need to register.
What if I applied for a licence but haven’t received it yet?
This is a grey area. The CRA has not issued specific guidance on pending applications. The safest approach is to document your application date, keep all confirmation emails, and consult a tax professional about whether to claim deductions while your application is in process.
Can the CRA actually find out if I’m unlicensed?
Yes. Platforms like Airbnb are required to report host income to the CRA. Municipalities share licensing data. The CRA can cross-reference platform income reports against municipal licence registries. Some cities also actively scan platforms for unlicensed listings and share that data with tax authorities.
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