Every other provision in this series operates inside the tax system. This one reaches outside it, making the deductibility of an ordinary business expense depend on whether a taxpayer holds a permit issued by a municipality that has nothing to do with CRA.
Key Takeaway
Section 67.7 of the Income Tax Act, introduced by Bill C-69 which received Royal Assent on 20 June 2024 and applying to expenses incurred after 2023, denies the deduction of expenses incurred to earn income from short-term rentals that are prohibited by, or do not comply with, provincial or municipal laws. A short-term rental is defined in subsection 67.7(1) as a residential property rented or offered for rent for a period of less than 90 consecutive days. The denial is prorated by the days the property was non-compliant over the days it was a short-term rental. Commentary describes the consequence as being taxed on the gross rent received for the period of non-compliance, and on our own figures a property with $60,000 of rent and $45,000 of expenses attracts tax of roughly 172 percent of its actual profit, converting a profit into an after-tax loss. Subsection 67.7(4) removes the normal reassessment period, so there is no time limit for CRA to reassess.
A Note On Currency
Everything here is stated as verified in August 2026 and requires confirmation before reliance. This is recent legislation, the first filing seasons under it have only just passed, and administrative practice is still developing.
We have not verified the statutory text against the Act. Every description of section 67.7 in this article comes from professional commentary, and the subsection references we give are as those sources cite them.
The provincial and municipal rules that determine compliance vary by jurisdiction, change frequently, and are outside our scope entirely. Nothing here tells a reader whether their own property is compliant, which is a question about their municipality's bylaws.
This is not tax or legal advice. Given the reassessment feature described below, a property owner with any doubt should obtain advice promptly rather than wait for a filing season to force the question.
An Unusual Mechanism
What makes this provision structurally different from everything else in this series. This section is our own analysis.
Canadian tax law generally determines deductibility by reference to tax concepts: whether an expense was incurred to earn income, whether it was capital in nature, whether it was reasonable.
Section 67.7 introduces a different kind of test. Commentary describes it as denying the deduction of expenses incurred to earn income from short-term rentals that are prohibited by, or do not comply with, provincial or municipal laws[1].
So the question is not whether the expense was properly incurred. It is whether the activity generating the income was lawful under a body of law CRA does not administer.
Three consequences follow.
The compliance question sits with a municipality, so the taxpayer must satisfy a regulator who has no interest in their tax position and no obligation to tell CRA anything.
The applicable rules differ by address. Two identical properties in adjacent municipalities can produce different federal tax outcomes.
And the rules change on municipal timelines. A property compliant when acquired can become non-compliant because a council passed a bylaw, without the owner doing anything.
Commentary describes the policy as being to discourage short-term rentals of residential properties during the current housing crisis[2], and another notes the Bill's stated intention to make homes more affordable for Canadians[1]. The provision is a housing measure delivered through the tax system.
The Provision And Its Timing
The legislative history, which contains a retroactive element.
Commentary records that on 20 June 2024, Bill C-69 received Royal Assent, making several amendments to the Act including the introduction of section 67.7. Subsection 67.7(2) denies the deduction of expenses incurred to earn income from non-compliant short-term rentals, and these new rules have retroactive effect to expenses incurred after 2023[1][3].
Another source confirms the rules took effect for the 2024 taxation year and that since 1 January 2024 deductions are denied where the property fails to meet licensing, registration or permit requirements or is located where short-term rentals are outright prohibited[4][5].
The retroactivity is worth pausing on, and this is our own observation.
An owner operating in January 2024 was subject to a rule that did not receive Royal Assent until June. Whatever notice was given by budget announcements, the binding provision arrived after nearly half the year it governs had elapsed.
That matters for the transitional relief discussed below, which is best understood as the response to exactly this problem.
It also matters for how an owner should think about their 2024 position. The first year under this provision was a year in which most operators were unaware of it, and the section on the reassessment period explains why that year is not safely behind them.
Ninety Consecutive Days
The threshold that determines whether the provision applies at all.
Commentary states that a short-term rental is defined in subsection 67.7(1) of the Act as any residential property that is rented or offered for rent for a period of less than 90 consecutive days[6].
Three features of that definition deserve attention and this is our own reading.
The period is 90 consecutive days, which is considerably longer than most people's mental model of a short-term rental. A two-month lease is a short-term rental for this purpose.
The definition covers property rented or offered for rent. Offering appears to be sufficient, which means a property listed but never booked may be within the definition.
And it applies to residential property, a defined term we have not examined.
The reach of that definition is much wider than the vacation-rental market it is popularly associated with. Corporate housing, furnished month-to-month accommodation, student lets between terms, insurance placements after a fire, and accommodation for temporary workers can all involve periods under 90 days.
An owner in any of those markets who has never thought of themselves as running a short-term rental should establish whether the definition captures them, because the consequences described below do not depend on how the business is described.
What Non-Compliant Means
The two ways a property fails, as the sources describe them.
Commentary describes the denial as applying where the property fails to meet licensing, registration or permit requirements, or where it is located in a place where short-term rentals are outright prohibited[4].
Those are different failures with different remedies, and this is our own analysis.
A licensing failure is curable. The operator obtains the permit, registers, pays the fee, and becomes compliant going forward. The property is permitted to operate; the paperwork was missing.
A prohibition is not curable by the operator. Where a municipality does not permit short-term rentals at that location, no application will fix it. The only responses are to stop, to change the activity so it falls outside the definition, or to accept the denial.
That distinction should drive an owner's response entirely, and the first question for anyone reviewing a portfolio is which category each property falls into.
The deduction denial is expressed by reference to a non-compliant amount as defined in the section[1], and we have not examined that definition. The mechanism by which it is quantified is the subject of the next section.
The Proration
How the denial is calculated, which is more nuanced than an all-or-nothing rule.
Commentary states that the deduction denial applies to the portion of expenses for a taxation year that represent the days that the property was non-compliant, out of the days in the taxation year that the property was also a short-term rental[6].
So the formula is a fraction, and both its numerator and its denominator are day counts.
The numerator is days of non-compliance. The denominator is days the property was a short-term rental, not days in the year.
That second point is important and easily misread, which is our own emphasis. A property used as a short-term rental for part of the year and as something else for the rest does not dilute its non-compliance across the whole year. The fraction is computed within the short-term rental period.
The practical consequence is that day counts become the critical record. An owner needs to be able to establish, for each property and each year, how many days it was a short-term rental and how many of those days it was compliant.
Those are facts that nobody records unless they know they need to, and they are precisely the facts a reassessment years later will turn on.
Taxed On Gross Rent
The consequence stated in the clearest terms we found.
Commentary puts it directly: if you have a non-compliant short-term rental, the non-compliant amount would be non-deductible for income tax purposes, meaning that you would be taxed on the gross rent received for the period of non-compliance[2].
To appreciate what that removes, note what a short-term rental landlord can normally deduct. Commentary lists mortgage interest, insurance costs, third party fees such as platform fees, and cleaning and maintenance fees, subject to limits and requirements under the Act[6].
Those are not marginal costs. For most short-term rental operations they are the overwhelming majority of the economics.
Mortgage interest alone frequently exceeds the net profit. Platform fees are a fixed percentage of revenue. Cleaning is a per-turnover cost that scales with occupancy.
An operator denied all of them is taxed as though the revenue arrived without cost, which no rental operation does.
Commentary elsewhere describes the effects as less flexibility in tax planning, a spiking tax bill, tighter cash flow as out-of-pocket costs rise with fewer expenses offsetting revenue, and greater audit exposure[4].
The next section quantifies that.
The Arithmetic
What the denial actually costs. These calculations are our own, applied to a hypothetical property at an assumed marginal rate of 43 percent.
Take a property generating $60,000 of gross rent with $45,000 of deductible expenses, producing a true profit of $15,000.
Compliant, the owner is taxed on $15,000 and pays $6,450.
Fully non-compliant, the owner is taxed on $60,000 and pays $25,800.
The additional tax is $19,350, which is the tax on the denied expenses.
Expressed against the economics of the property, that tax is approximately 172 percent of the actual profit.
We would emphasise that these figures are illustrative and that the marginal rate, the expense ratio and the provincial rate all vary. The shape of the result does not.
Because the denial removes expenses rather than adding income, its severity scales with how expense-heavy the operation is. A highly leveraged property with a large mortgage interest deduction suffers far more than an unencumbered one, which means the operators least able to absorb the hit are the ones hit hardest.
A Profit That Becomes A Loss
The consequence that follows from those numbers, and it is the reason this provision is not merely expensive.
On the figures above, the owner has $15,000 of actual profit and a tax bill of $25,800.
The after-tax result is negative $10,800, on our own calculation.
The property made money and the owner is worse off than if it had sat empty, before considering their own time.
Three observations, all ours.
This is not a penalty in form. There is no penalty provision here; the outcome arises entirely from denying ordinary deductions. But an outcome that exceeds the income it attaches to functions as one.
The cash position is worse than the accounting position. The owner must fund a tax bill of $25,800 from a business that generated $15,000 of cash, which requires finding the difference elsewhere.
And the result compounds across years. Because the reassessment period has been removed, as described below, an owner can face several years of this at once, with interest.
That combination is what makes early identification of a non-compliance problem so much more valuable here than in most areas of tax.
Partial Non-Compliance
How the proration softens the outcome, worked through. These figures are our own.
Take the same property, with 250 days of short-term rental use in the year.
Non-compliant for 30 of those days, being 12 percent, denies $5,400 of expenses, giving taxable income of $20,400 and tax of $8,772.
Non-compliant for 100 days, being 40 percent, denies $18,000, giving taxable income of $33,000 and tax of $14,190.
Non-compliant for 180 days, being 72 percent, denies $32,400, giving taxable income of $47,400 and tax of $20,382.
Fully non-compliant produces the $25,800 figure given earlier.
Two practical points follow, and they are ours.
The relationship is linear, so every day of non-compliance removed is money. An owner who obtains a licence mid-year improves their position for the remainder, and the improvement is proportionate rather than all-or-nothing.
And because the denominator is short-term rental days rather than days in the year, an owner who reduces short-term rental use while remaining non-compliant does not necessarily improve the fraction. Reducing the denominator while the numerator stays proportional leaves the ratio unchanged.
What helps is becoming compliant, or ceasing to be a short-term rental at all, which is addressed below.
The Window That Has Closed
The relief for the first year, which no longer helps anyone prospectively but matters for a year still open to reassessment.
Commentary states that for the 2024 taxation year, subsection 67.7(3) provides transitional relief: if a short-term rental was compliant by 31 December 2024, the property would be deemed fully compliant for the 2024 taxation year[1][3].
Another source confirms the relief applied to individuals, corporations and partnerships, and that if a property became compliant on or before 31 December 2024, CRA would treat it as compliant for the entire 2024 tax year[4].
That is an unusually generous provision, and this is our own reading of why it existed.
Because the legislation received Royal Assent in June while applying from January, operators had no opportunity to be compliant for the first part of the year in reliance on a rule that did not yet exist. The relief cured that.
Its practical significance now is backward-looking and specific. An owner who obtained their licence at some point during 2024, even in December, may be deemed compliant for the whole of 2024.
Given that 2024 remains open to reassessment indefinitely, as the next sections explain, an owner who assumed they had a partial-year problem in 2024 should check whether this relief resolves it entirely.
Equally, an owner who did not become compliant during 2024 received no relief for that year at all.
Day By Day From 2025
The position after the transitional year.
Commentary is explicit: starting in 2025, no such relief exists, and compliance is judged day-by-day[4]. Another states that limited transitional relief exists for the 2024 taxation year only, with the full rules applying strictly from 2025 onward[5].
The operational implication is that compliance becomes a continuous obligation rather than an annual one, and this is our own analysis.
Licences expire. Renewals are missed. A municipality changes its requirements and gives a window to re-register. An operator sells one property and the registration does not transfer to the next. A permit is suspended pending an inspection.
Each of those creates a period of non-compliance measured in days, and each of those days now carries a proportion of the year's expenses.
A gap of six weeks between a lapsed licence and its renewal is not an administrative irritation. On the proration described earlier, it denies roughly that fraction of the year's short-term rental expenses.
The control this argues for is unglamorous and effective: a diarised renewal date per property, owned by a named person, with the renewal completed well before expiry rather than on it.
The Reassessment Period Is Gone
The feature of this provision that we consider the most consequential, and the least discussed.
Commentary states that under subsection 67.7(4), the normal reassessment period, being the period during which CRA may reassess a taxpayer without relying on a narrow set of statutory exceptions, does not apply to the denial of deductions under these rules. As such, there is no time limit by which CRA must reassess a taxpayer in respect of an expense incurred after 2023 for a non-compliant short-term rental, and taxpayers are therefore subject to having CRA deny such expenses indefinitely[1][3].
Another describes it as one of the most aggressive features of these rules, noting that normally CRA has a three-year window after issuing a notice of assessment to reassess most individual or Canadian-controlled private corporation returns, and that under subsection 67.7(4) there is no deadline for reassessing taxes, interest or penalties tied to these denials. It calls this an open-ended reassessment power allowing CRA to review and adjust returns indefinitely if non-compliance is discovered later, so that landlords could face back taxes plus accumulating interest and penalties years after filing[5].
We have not verified subsection 67.7(4) against the Act, and given its significance a reader relying on this should have it read directly.
Taken as the sources describe it, the position is that a 2024 expense has no closing date.
Why That Is Extraordinary
Context for readers who do not work in tax, offered as our own analysis.
The normal reassessment period is one of the foundations of Canadian tax administration. It gives a taxpayer finality: after a defined period, a year is closed unless the Agency can establish one of a narrow set of exceptions, typically involving misrepresentation attributable to neglect, carelessness, wilful default or fraud.
That structure reflects a bargain. The taxpayer files honestly and completely, and in exchange the matter ends.
What the sources describe here is that bargain being set aside for one category of expense, without requiring the Agency to establish anything about the taxpayer's conduct.
An owner who filed accurately, disclosed everything, and simply did not hold a municipal licence has no closing date on that year.
Three practical consequences follow.
Record retention for these properties cannot follow the ordinary schedule. Whatever period a taxpayer normally keeps records for, the exposure here outlives it.
The value of resolving a historical problem does not decay with time in the way it usually does. An owner who was non-compliant in 2024 does not become safer in 2029.
And the risk transfers awkwardly on a sale. A purchaser of a portfolio, or of a corporation holding short-term rental properties, is acquiring a liability with no expiry, which is a diligence point that has not yet worked its way into standard practice.
What It Means In Practice
How an owner should respond to an indefinite exposure. This section is our own analysis.
The instinct with an old tax problem is to wait it out. Years close, and a problem that was never detected eventually becomes moot.
That instinct is wrong here, and acting on it makes the position worse, because interest continues to accrue on an amount that is never extinguished by time.
Three responses follow.
Establish the historical position now. For each property and each year from 2024, determine the days of short-term rental use and the days of compliance. The records exist today and will be harder to assemble each year.
Check the 2024 transitional relief specifically. An owner who became compliant at any point during 2024 may have a clean year, and that is worth establishing rather than assuming.
Take advice on any identified exposure rather than leaving it. Where a prior year is wrong, the options available depend on acting before the Agency does, which is a theme running through this series and which matters more here because there is no point at which the option lapses through the passage of time.
We would add that the calculation is not always adverse. An owner who assumed the worst may find, on working through the proration and the transitional relief, that the exposure is smaller than feared.
Either way it is a question with an answer, and it is better to have it than to carry an open-ended unknown.
What Is Not Caught
Two limits on the provision that are genuinely useful and counterintuitive.
Commentary states that the new deduction denial rule applies only when there is non-compliance with applicable provincial or municipal legislation or bylaws. It therefore does not extend to non-compliance with prohibitions of short-term rentals in condominium or strata corporations. It also states that the rule does not seem to apply when there has been non-compliance with federal legislation, giving as an example the federal legislation prohibiting the purchase of residential property by non-Canadians[6].
We report the second with the source's own hedge, since it says the rule does not seem to apply, which indicates a view rather than a settled position.
Both limits follow from the provision being tied to provincial and municipal law specifically, and neither should be over-read.
The condominium point is addressed separately below because it produces a result many owners will find surprising.
The federal point is narrower in practical effect but worth knowing. It means the analysis under this section is a question about provincial and municipal rules only, so an owner should scope their compliance review accordingly rather than attempting to assess every legal obligation attaching to the property.
The Condominium Point
A limit that resolves one problem and leaves another entirely intact. This section is our own analysis.
A substantial share of Canadian short-term rental stock is in condominiums, and a substantial share of condominium corporations have adopted rules prohibiting or restricting short-term rentals.
On the commentary above, an owner breaching such a rule has not thereby triggered section 67.7, because the prohibition is imposed by the corporation rather than by provincial or municipal legislation[6].
That is genuine relief on the tax question and it should not be mistaken for relief generally.
The owner remains in breach of the declaration or rules of the corporation, exposed to enforcement, compliance orders, costs and in some jurisdictions substantial remedies. Those consequences are unaffected by anything in the tax legislation.
So a condominium owner in this position has one problem rather than two, which is better, and the remaining problem is with a body that shares a building with them and is considerably more likely to notice.
Two further cautions, ours. Where a municipality's licensing regime requires evidence that the use is permitted by the building, a condominium prohibition can become a municipal compliance failure indirectly. And the analysis above is a commentary view we have not tested, so an owner in this position should take advice rather than rely on a general statement.
The Ninety Day Exit
The structural response available to an owner who cannot become compliant.
Commentary sets it out: to avoid falling afoul of the regulatory regimes, landlords can offer the property for periods of 90 consecutive days or longer. The property would then cease to be a short-term rental and the deduction denial rule would not apply[6].
Another notes that a property owner may plan to move to longer-term rentals to avoid the disallowance of expenses[2].
This is the only complete answer available to an owner in a municipality that prohibits short-term rentals outright, since no licence can be obtained.
Three observations, ours.
The threshold is generous relative to the market. Ninety days is three months, which is a viable product in corporate housing, relocation, academic and medical markets, and does not require converting to a conventional annual tenancy.
The economics change substantially. Longer stays typically command lower nightly rates, though they reduce turnover costs, vacancy and platform fees, so the net effect depends on the property and market.
And the change must be real. A property offered for 90-day periods but actually let for shorter ones is presumably still within the definition, which refers to property rented or offered for rent for less than 90 consecutive days[6].
The exit is genuine and it comes with a complication addressed next.
The Trap In That Exit
A warning both sources attach to the ninety-day solution.
Commentary states that changing the rental parameters of a property may cause GST/HST issues[6]. Another puts it as switching to longer rental periods creating change-of-use situations that require GST/HST adjustments, and advises always confirming with a tax advisor[5].
We have not examined the mechanics and we are not going to describe them, because a partial account of change-of-use rules would be worse than none.
What we can state is why the warning exists, and this is our own reasoning from the structure of the sales tax system.
Short-term accommodation and long-term residential rent are treated differently for GST/HST purposes. A property moving between those uses is changing the character of the supply being made from it.
Where a property has been used in a way that gave rise to input tax credit entitlements, and its use changes to one that does not, the system generally has rules requiring an adjustment.
The practical instruction is therefore specific and important: the ninety-day exit is an income tax solution that can create a sales tax event, and both should be modelled before the change is made.
An owner who switches to longer lets in December to fix an income tax problem, and discovers a sales tax consequence in the following year, has traded one problem for another. The sequencing is entirely within their control if the question is asked first.
Where The Data Comes From
A development that explains how non-compliance is likely to be identified.
Commentary records that on 3 December 2024, the Department of Finance announced the Short-Term Rental Enforcement Fund, which will deliver funding to municipalities to help ensure compliance with their short-term rental laws[1][3].
The significance of that, and this is our own analysis, is about information rather than money.
Section 67.7 makes a federal tax consequence depend on municipal compliance. For that to be enforced, someone has to know which properties are compliant.
Municipalities know, because they issue the licences and run the registries. Federal funding for municipal enforcement produces better municipal records, and better municipal records are the natural source for identifying non-compliant properties.
This is the same pattern this series identified in its first article, on residential construction, where CRA obtained municipal building permit lists and matched them against its own registrations. A municipal register generated for a non-tax purpose is a high-quality third-party dataset.
The general lesson recurs across this series and is worth restating: the record that establishes your position is frequently held by a party with no interest in your tax affairs, created for their own reasons.
An owner should assume that whether a licence existed for a given property in a given period is knowable, because a municipality knows it.
What The Auditor Actually Examines
The enquiry in practice, structured by the provision's own elements. This section is our own analysis.
Whether the property meets the definition, being rented or offered for rent for periods of less than 90 consecutive days, which is established from booking records and listings.
Licence or registration status by date, which municipalities hold and which the owner should be able to evidence.
The day counts, being short-term rental days and non-compliant days, since the proration depends on both.
Expenses claimed, tested against the denied proportion.
The 2024 transitional position, being whether compliance was achieved at any point in that year.
Platform records, which establish listing periods, booking durations and gross receipts independently of the owner's own records.
Continuity across renewals in 2025 and later, where day-by-day assessment applies.
The sixth item is the one owners underestimate. Booking platforms hold a complete record of listing dates, stay lengths and amounts received, and that record establishes both whether the definition is met and what the gross rent was.
What Records Survive
A licence file per property, with issue and expiry dates and evidence of each renewal, retained beyond any normal schedule given the open reassessment period.
A day-count schedule per property per year, recording short-term rental days and compliant days, prepared contemporaneously.
Booking records showing stay lengths, which establish whether the definition applies.
Listing records showing what was offered, since offering for rent is within the definition.
Evidence of the 2024 compliance date where transitional relief is relied on.
Correspondence with the municipality, including applications, confirmations and any notices received.
A record of the compliance analysis for each property, identifying whether any failure is a licensing gap or a prohibition, since the two have different remedies.
Documentation of any change to 90-day letting, including when it took effect, given the sales tax question that accompanies it.
What To Do
Check whether the definition catches you at all. Less than 90 consecutive days is much longer than most operators assume, and it reaches corporate, student, relocation and insurance accommodation.
Establish, per property, whether the issue is a licence or a prohibition. One is curable by application; the other is not, and only the 90-day exit or ceasing the activity resolves it.
Build the day-count schedule now. The proration turns on non-compliant days over short-term rental days, and nobody records those unless they know they must.
Check the 2024 transitional relief. Becoming compliant at any point in 2024, even in December, may deem the whole year compliant, and that year remains open indefinitely.
Diarise every licence renewal with a named owner. From 2025 compliance is judged day by day, so a six-week gap denies roughly that fraction of the year's expenses.
Do not wait it out. The normal reassessment period is reported not to apply, so a bad year does not close and interest continues to run.
Retain records beyond your normal schedule. An exposure with no expiry outlives an ordinary retention policy.
Model the sales tax consequence before switching to longer lets. Both sources warn that a change of use can create an adjustment, and the sequencing is within your control.
Treat this as a diligence item on any acquisition. A purchaser of short-term rental properties or of a company holding them is acquiring a liability with no closing date.
Assume the municipality's register is knowable. Federal funding for municipal enforcement produces exactly the third-party dataset this provision needs.
The Limits Of This Analysis
Several caveats matter. This is not tax or legal advice; given the reassessment feature described, an owner with any doubt should obtain advice promptly. Everything is stated as verified in August 2026 and requires confirmation; this is recent legislation and administrative practice is still developing. We have not verified section 67.7 against the Act, and every description of it here, including all subsection references, comes from professional commentary; given the significance of subsection 67.7(4) in particular, a reader relying on it should have the text read directly. We have not examined the definitions of non-compliant amount or residential property. The statement that the rule does not extend to federal legislation is reported with the source's own hedge that it does not seem to apply, indicating a view rather than a settled position, and the condominium analysis is similarly a commentary view we have not tested. Provincial and municipal rules determining compliance vary by jurisdiction, change frequently, and are entirely outside our scope; nothing here indicates whether any particular property is compliant. We have deliberately not described the GST/HST change-of-use mechanics, having not examined them, and note only that both sources warn an adjustment may arise. All arithmetic is our own, applies an assumed marginal rate to hypothetical figures, ignores provincial variation and any other charge, and is illustrative only. The observations on why the reassessment feature is extraordinary, on acquisition diligence, on record retention, on the Enforcement Fund as a data source and on the audit examination structure are our own analysis. This article does not address the Underused Housing Tax, provincial speculation and vacancy taxes, platform reporting obligations, the treatment on a later sale of the property, or municipal licensing requirements in any jurisdiction.
Frequently Asked Questions
What does section 67.7 actually do?
What counts as a short-term rental?
How bad is the consequence?
Does a bad year eventually close?
Our condominium prohibits short-term rentals. Does that trigger the denial?
Can we just rent for longer periods instead?
References
- Thorsteinssons LLP Tax Blog. (2025, February). Income Tax Act Now Denies Deductions for Non-Compliant Short-Term Rentals, as also published by Lexpert and Lexology, on Bill C-69 receiving Royal Assent on 20 June 2024 and introducing section 67.7; on subsection 67.7(2) denying the deduction of expenses incurred to earn income from short-term rentals that are prohibited by or do not comply with provincial or municipal laws; on the rules having retroactive effect to expenses incurred after 2023; on the deduction being denied to the extent that it is a non-compliant amount as defined in the section; on subsection 67.7(3) providing transitional relief such that a short-term rental compliant by 31 December 2024 is deemed fully compliant for the 2024 taxation year; on subsection 67.7(4) disapplying the normal reassessment period so that there is no time limit for CRA to reassess an expense incurred after 2023 for a non-compliant short-term rental, leaving taxpayers subject to denial indefinitely; and on the Department of Finance announcing the Short-Term Rental Enforcement Fund on 3 December 2024 to deliver funding to municipalities. Note: a Canadian tax law firm publication; we have not verified the statutory text or the subsection references against the Act. thor.ca
- Lexology. Short-Term Rentals and Expense Denials: Income Tax Rules and GST Risks, on the change to deny the deduction of expenses incurred in the year on non-compliant short-term rentals taking effect in 2024; on the policy being to discourage short-term rentals of residential properties during the current housing crisis; on a non-compliant amount being non-deductible so that the owner is taxed on the gross rent received for the period of non-compliance; and on a property owner potentially planning to move to longer-term rentals to avoid the disallowance. Note: professional commentary published through a syndication service. lexology.com
- Lexpert. (2025, July). Income Tax Act Now Denies Deductions for Non-Compliant Short-Term Rentals, reporting the same analysis, on the Royal Assent date and retroactive effect, the transitional relief in subsection 67.7(3), the disapplication of the normal reassessment period under subsection 67.7(4), and the announcement of the Short-Term Rental Enforcement Fund. Note: a legal trade publication carrying the same firm commentary. lexpert.ca
- Boyer & Boyer. (2025, November). CRA Section 67.7 Explained for Short-Term Rental Hosts, on deductions being denied since 1 January 2024 where the property fails to meet licensing, registration or permit requirements or is located where short-term rentals are outright prohibited; on the effects including reduced flexibility in tax planning, a higher tax bill, tighter cash flow and greater audit exposure; on transitional relief applying where the property becomes compliant on or before 31 December 2024, treating it as compliant for the entire 2024 year, and applying to individuals, corporations and partnerships; and on no such relief existing from 2025, with compliance judged day by day. Note: a professional accounting publication. boyer-boyer.com
- Rotfleisch & Samulovitch PC. (2026, May). Short-Term Rental Tax Deductions Denied in Canada, on the removal of standard time limits for CRA review being one of the most aggressive features of the rules; on CRA normally having a three-year window after issuing a notice of assessment to reassess most individual or Canadian-controlled private corporation returns; on subsection 67.7(4) providing no deadline for reassessing taxes, interest or penalties tied to these denials; on the resulting open-ended power allowing indefinite review with back taxes plus accumulating interest and penalties years after filing; on limited transitional relief applying only to 2024 with full rules applying strictly from 2025; and on switching to longer rental periods creating change-of-use situations requiring GST/HST adjustments. Note: a Canadian tax law firm publication. taxpage.com
- Bennett Jones LLP. Comply or Lose Your Tax Deductions: New Income Tax Act Rules Target Short-Term Rental Landlords, on the definition in subsection 67.7(1) of a short-term rental as any residential property rented or offered for rent for a period of less than 90 consecutive days; on the denial applying to the portion of expenses for a taxation year representing the days the property was non-compliant out of the days in the year it was also a short-term rental; on the rule applying only where there is non-compliance with applicable provincial or municipal legislation or bylaws and therefore not extending to condominium or strata prohibitions; on the rule not seeming to apply to non-compliance with federal legislation; on landlords being able to offer the property for periods of 90 consecutive days or longer so that it ceases to be a short-term rental; on the warning that changing rental parameters may cause GST/HST issues; and on the expenses normally deductible including mortgage interest, insurance, third party fees and cleaning and maintenance. Note: a Canadian law firm publication; the federal legislation point carries the source's own hedge. bennettjones.com
This article is provided for general informational purposes and is not tax or legal advice. Section 67.7 has not been verified against the Act by the authors, and all descriptions including subsection references come from professional commentary. Provincial and municipal compliance rules vary by jurisdiction and are outside this article's scope. All arithmetic is the authors' own, applies an assumed marginal rate to hypothetical figures, and is illustrative only.