In the Fall Economic Statement,1 Finance Canada, indicated it is planning changes to the short-term rental rules. It has also released additional clarifications to the new Underused Housing Tax (UHT) rules.
With plans for changes to the short-term rental rules, the ability to claim expenses against short-term rental income may be impacted. This matters for assignees who plan to rent out their home while on assignment using a short-term rental platform, instead of entering into a long-term lease agreement.
Clarifications to the UHT rules could impact globally-mobile employees who may have a UHT filing requirement or for employers who provide housing for their assignees. The clarifications may be welcome news, as they lower penalties imposed for non-compliance, and certain specified entities that used to have UHT filing obligations will now be exempt from that obligation.
Details: in Brief
The Fall Economic Update advises that taxpayers will no longer be able to claim certain income tax deductions related to expenses for short-term rental income. Specifically, taxpayers will not be able to claim deductions:
- For expenses incurred to earn short-term rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals;
- Where short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.
This measure applies for expenses incurred on or after January 1, 2024.
Short-Term Rentals
The Fall Economic Update advises that taxpayers will no longer be able to claim certain income tax deductions related to expenses for short-term rental income. Specifically, taxpayers will not be able to claim deductions:
- For expenses incurred to earn short-term rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals;
- Where short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.
This measure applies for expenses incurred on or after January 1, 2024.
Underused Housing Tax Rules
Finance has released additional clarifications to the new Underused Housing Tax rules. (For related coverage, see GMS Flash Alert 2023-083, April 14, 2023.) They have clarified that if the residential property is held by a Specified Corporation, Specified Partnership, or Specified Trust, these entities will now be considered “excluded owners” and will no longer have a filing obligation. (Previously they had to file the UHT return, but were exempt from the tax.) The updates also include an exemption for residential properties in certain lower-population areas that are held as a place of residence or lodging for employees, effective for 2023 and subsequent years.
Also, the UHT penalties have been reduced: the minimum non-compliance penalty is now $1,000 for individuals (from $5,000) and $2,000 for corporations (from $10,000) per failure, for 2022 and subsequent calendar years. (All dollar figures expressed are Canadian dollars.)
There are also updates to the rules on the vacation property exemption.
KPMG insights
Globally-mobile employees subject to Canadian tax rules, as well as their employers, that are covered by the short-term rental rules or the Underused Housing Tax rules may wish additional information to better understand how the rules apply to them and what steps may need to be taken to be in compliance. If so, they should consult their qualified tax professional or a member of the GMS tax team with KPMG in Canada (see the Contacts section).
Contacts
Additional Resources
Footnotes
1 Finance Canada, "Fall Economic Statement 2023" at: https://www.budget.canada.ca/fes-eea/2023/report-rapport/FES-EEA-2023-en.pdf . Also, see the analysis from KPMG in Canada, "Highlights of the 2023 Federal Fall Economic Update" in TaxNewsFlash-Canada (November 21, 2023, Volume 2023-47).
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in Canada.
GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
We respectfully acknowledge that KPMG offices across Turtle Island (North America) are located on the traditional, treaty, and unceded territories of First Nations, Inuit and Métis peoples.
© 2024 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://kpmg.com/governance.