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Federal economic update targets short-term rentals

OTTAWA—The federal fall economic update released this past week has implications for those aiming to claim certain deductions related to expenses incurred while earning short-term rental income—a burgeoning issue for many municipalities.

According to the update, starting January 1, 2024, short-term rental operators will not be able to deduct expenses incurred to earn rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals.

Further, those short-term rental operators who are not compliant with provincial and municipal licencing, permitting or registration requirements will also not be able to claim those expenses to offset their taxable income—also after January 1.

Short-term rentals have been fingered for worsening the affordable housing crisis in many provinces and municipalities in recent years, especially in popular tourism destinations. It is an issue that has been reverberating globally. The impact is anything but small potatoes, as a new study by McGill University (led by professor David Wachsmuth) found that between 2017 and 2019, the growth of short-term rental units accounted for 19.8 percent of rent increases in British Columbia—resulting in a whopping $2 billion cost to renters in that province.

The issue is nothing new, having been on the federal radar for several years. An earlier McGill study was awarded the 2020 President’s Medal for Outstanding Housing Research by the Canada Mortgage and Housing Corporation. That study determined that “short-term rentals have been a major cause of housing financialization in Canada, providing revenue outside of traditional rentals; the majority of short-term rentals are owned by large-scale commercial operators, and not by private individuals; and the financial incentives of short-term rentals place pressure on housing has led to long-term rentals being converted into short-term ones.”

The study also found that 31,000 homes have been taken off the market due to short-term rentals.

A number of Island municipalities have undertaken to place limits on short-term rentals, most notably Billings and Gore Bay (which has limited the number to five) while others are depending on existing regulation to help stem the tide. Those efforts have seen significant pushback by Island operators.

Article written by

Michael Erskine
Michael Erskine
Michael Erskine BA (Hons) is a staff writer at The Manitoulin Expositor. He received his honours BA from Laurentian University in 1987. His former lives include underground miner, oil rig roughneck, early childhood educator, elementary school teacher, college professor and community legal worker. Michael has written several college course manuals and has won numerous Ontario Community Newspaper Awards in the rural, business and finance and editorial categories.