The CRA rule that can erase your STR deductions (Section 67.7)

There’s a federal tax change a lot of Ontario operators still haven’t fully registered, and it’s the most expensive thing on this page. Since 2024, if your short-term rental doesn’t comply with provincial or municipal rules, the Canada Revenue Agency can deny all your expense deductions — mortgage interest, property tax, insurance, repairs, cleaning, platform fees, everything — on the income that rental earned.

This isn’t a fine. It’s a recharacterization of your whole tax position, and it can turn a modestly profitable rental into a loss after tax.

What the rule actually says

The mechanism is Section 67.7 of the Income Tax Act, introduced by Bill C-69 (Royal Assent June 20, 2024) and effective for expenses incurred after 2023. The CRA’s own definition: a short-term rental is a residential property rented for periods of less than 90 consecutive days. A “non-compliant” short-term rental is one that either operates where STRs are prohibited, or fails to meet the registration, licensing, and permit requirements of its province or municipality.

For a non-compliant rental, the otherwise-deductible expenses become a “non-compliant amount” and are denied. The CRA can deduct nothing against that rental income.

The transitional relief is gone

For the 2024 tax year only, there was a grace provision: if you became compliant by December 31, 2024, you were treated as compliant for the whole year. That window has closed. Starting with 2025, compliance is judged day by day — there’s no catch-up, no deemed-compliant-for-the-year safety net.

Why this is sharper than it looks

A few details make Section 67.7 unusually serious. The reassessment power has no statutory time limit — under subsection 67.7(4), the CRA can go back and reassess these expenses indefinitely, with interest and penalties compounding. And separately, platforms like Airbnb and Vrbo are now required to report host and property information to the CRA annually, so the data to find non-compliant operators is being handed over automatically.

A worked illustration from one Canadian accounting firm: an operator with a non-compliant rental at Ontario’s top marginal rate faced roughly $4,000 in additional personal income tax for a single year, purely from denied deductions — money they hadn’t planned for.

What this means in practice

The federal rule has no compliance requirements of its own — it simply borrows whichever provincial and municipal rules apply to your property. So “am I compliant?” is always a local question: do you have the licence, registration, or permit your municipality requires, if it requires one? In a city with no STR licensing regime, there may be nothing to comply with on that axis; in a licensed city, an unlicensed rental is now a tax problem on top of a bylaw problem.

That’s exactly why the rest of this resource library exists market by market — because there is no single national answer, and getting your local status right is now a tax decision, not just a bylaw one.

This is general information, not tax advice. Section 67.7 interacts with your specific situation in ways a CPA should review — especially given the open-ended reassessment period. Confirm your municipal compliance status and talk to an accountant before filing.