Canadian short-term rental taxes: rental income, GST/HST, and a home that changed use

Rental income or business income, entirely on domestic facts

Basic accommodation — a clean unit, utilities, wifi, linens between stays — is property income on Form T776. Add real services during the stay, such as daily housekeeping, breakfast, or a caretaker providing lake access and equipment, and it becomes business income on Form T2125. Volume matters too: a single cottage rented a dozen weekends a year reads differently than five listings run through a booking system with a standing team behind them. The classification changes whether CPP applies, moves the filing deadline to June 15 for business income, and affects whether a capital cost allowance claim can create or increase a loss. Registering for GST/HST does not settle the income tax question either way — the two classifications are decided independently, on their own tests, even though hosts often assume one answer decides the other.

GST/HST: the exemption that does not apply to you

Long-term residential rent is exempt from GST/HST, but stays under thirty consecutive days are not — HST on commercial and residential rent explains why the usual residential exemption stops at that thirty-day line. Once your taxable short-term revenue passes $30,000 over four consecutive calendar quarters, registration is mandatory, and voluntary registration earlier can make sense if you are investing in the property and want the input tax credits.

Since July 2021, a platform that facilitates your booking collects and remits the tax itself whenever you have not given it a GST/HST number. Register, hand the platform your number, and the collection duty moves to you — including on any direct bookings the platform never touches. We confirm which regime applies before assuming either one. A host who registers late does not get a pass on tax that should have been charged from the day the threshold was crossed, and the platform's own year-end summary will not tell you when that day was — only your own booking calendar reconstructs it accurately.

Municipal licensing now protects your deductions, not just your permit

Toronto, Ottawa and a growing list of cottage-country municipalities require registration or licensing before a short-term listing operates legally. As at the time of writing, a 2024 federal measure denies income tax deductions for expenses of earning short-term rental income where the property operates in a province or municipality that prohibits it, or where the host has not met local registration and licensing requirements. That makes a current municipal licence a tax document as much as a permit — we ask to see it every year, not only when it is due for renewal. As drafted, the measure can reach the expenses for the whole period a listing was out of compliance, not just a prorated slice of it, which is a harsher result than most hosts expect from what feels like a paperwork lapse.

When part of your home changed use

Converting a room, basement suite or the whole property from personal use into an income-earning short-term rental can trigger a change in use and a deemed disposition of the business-use portion at fair market value — what a deemed disposition is and when the CRA applies it explains the general mechanism. Whether the principal residence exemption still shelters the rest of the gain depends on how much of the home is involved and whether structural changes were made. We generally advise against claiming capital cost allowance on a space that is part of your principal residence, because a CCA claim can put the exemption for that portion at risk for a smaller current-year deduction that rarely pays for itself.

A host who blocks off weeks for personal use also has to prorate mortgage interest, utilities, insurance and condo fees on a days-of-use basis for the portion that stays personal, using the same booking calendar that already tracks the GST/HST threshold — one record, doing two jobs.

Cross-border ownership questions — a non-resident who kept a Canadian cottage, or a host who also lists a property in the United States — run on a different set of rules entirely, covered on our cross-border tax page for short-term rental hosts.

Source: CRA — Reporting rental income.