Rental Expense Deduction Denial – Canada is Cracking Down on Non-Compliant Short-Term Rentals

By McGovern Hurley

Many provinces and municipalities across Canada have recently introduced legislation to limit or eliminate short-term rentals of residential real estate in an effort to increase the supply of long-term housing for Canadians. Some provinces, including Quebec and British Columbia, as well as some municipalities, such as Toronto, Montreal, and Vancouver, have already taken action. The federal government has formally expressed support for these action plans and will be cracking down on non-compliant short-term rentals starting in 2024.

Proposed New Changes:

The newly released 2023 Fall Economic Statement announced that the federal government intends to deny income tax deductions for expenses incurred to earn short-term rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals.

Short-term rental income was not defined, but it seems to refer to income on rentals where the period of occupancy is less than one month. These proposed changes target investors renting out entire houses and apartments on a short-term basis – in many cases, through digital short-term rental platforms.

In addition, the federal government intends to deny income tax deductions when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.

These measures are expected to apply on or after January 1, 2024.

What Does This Mean for You?

If you are a short-term rental operator or are looking to provide short-term rentals, get informed on the legislation in your province and/or municipality and ensure you have met all provincial and municipal licensing, permitting, or registration requirements.

It is expected the federal government will publish legislation surrounding short-term rentals in the near term, where more details will be available.


If you have any questions, the team here at McGovern Hurley LLP is always here to help.

John Mendis, Tax Advisory and Compliance Partner,

Greg Furyk, Business Advisory and Compliance Partner,