Unregistered Short-Term Rental in Ontario? What Canada’s Non-Compliant STR Rule Means for Your Rental Expense Deductions
Section 67.7 of the Income Tax Act does not switch your deductions off for the year. It turns the unregistered stretch into a fraction, counted in days.
How much of my short-term rental expenses can I deduct if I wasn’t registered for part of the year?
The amount you lose is A × B ÷ C. A is what you could otherwise deduct for the property’s short-term rental use that year; B is the number of days it was a non-compliant short-term rental; C is the number of days it was a short-term rental at all. Unregistered for 120 of 200 short-term rental days means 120 ÷ 200, or 60% of A, is not deductible, and the other 40% still goes through the ordinary rules. “Short-term” here means rented or offered for rent for less than 90 consecutive days.
Source: Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 67.7(1)-(2), Justice Laws Website (Act current to 2026-09-30)
I’m Arthur Zhao, a Toronto real estate Broker. Picture an owner pulling the year-end file together for a whole-unit investment property: nobody lives in it, and it is listed for short stays. The calendar shows the unit was a short-term rental for 200 days this year. The municipal registration, though, only took effect on day 121. The first 120 days ran unregistered.
Under section 67.7 of the federal Income Tax Act, that gap does not erase the whole year’s deductions, and it does not leave them alone either. It becomes a fraction. The figures below are hypothetical; the formula is the one written in the Act.
Run the numbers first: A, B and C on a hypothetical year
Hypothetical facts: a whole-unit investment property in an Ontario municipality that, for this example, permits whole-unit short-term rentals at that address but requires registration. (That is not Toronto; the next section explains why.)
C = 200. The days in the year the property was a short-term rental.
B = 120. The days it was a non-compliant short-term rental: day 1 to day 120, before registration took effect.
A = $18,000. Assume the accountant has already worked out that $18,000 of the year’s otherwise-deductible amounts relate to the short-term rental use.
Non-compliant amount = $18,000 × 120 ÷ 200 = $10,800, not deductible. The remaining $7,200 is not automatically allowed; it simply goes back through the ordinary deduction rules.
According to the Income Tax Act (s. 67.7(1), Justice Laws Website, current to 2026), each letter has a precise meaning:
– A is the total that “would, if subsection (2) did not apply, be deductible” for the use of the property as a short-term rental. So the ordinary rules come first and the cut comes after. If the unit also had a long-term lease or personal use during the year, the provision does not say how to split costs into A; that is a question for your accountant.
– B and C are both day counts inside the same taxation year.
– The definition of short-term rental covers a property “rented or offered for rent” for less than 90 consecutive days. On that wording, listed days and not only booked nights may enter the count. How to count a specific calendar is something to work through with an accountant.
Two end points follow from the formula: compliant every day, B is zero and nothing is cut; never compliant, B equals C and all of A is cut.
Where a short-term rental counts as non-compliant
The Act defines a non-compliant short-term rental, at any time, as one located in a province or municipality that, at that time:
(a) does not permit the operation of the short-term rental at that location; or
(b) requires registration, a licence or a permit to operate it, and the rental does not comply with all applicable registration, licensing and permit requirements.
Two words carry weight. “At that time” makes the test run moment by moment, which is why B is counted in days. “All” in branch (b) means meeting one requirement while missing another still leaves the rental non-compliant.
Now move the hypothetical unit to Toronto. The City’s operator page (read in 2026) says short-term rentals are permitted only in principal residences, and Chapter 547, §547-4.2 B bars an operator from renting a property short-term unless it is the operator’s principal residence at that time. Chapter 547 defines principal residence as the dwelling unit where the operator ordinarily resides, and no more than one.
If the unit were in Toronto and nobody, the owner included, ordinarily lived there, one reading is that Toronto does not permit that short-term rental at that location, which is branch (a). In that case B could equal C for every short-term rental day, and all of A would be cut. Registration would not change that picture, because Toronto ties registration to the principal residence address. Section 67.7 does not name Toronto or any other city; this is my reading of how the two texts meet, not a rule written in either. Talk to an accountant about your own facts.
Toronto’s Chapter 547: registration, renewal and the 28-day line
According to Toronto Municipal Code Chapter 547 (consolidation dated January 1, 2025):
– §547-1.2 B: no person shall carry on the business of a short-term rental operator unless registered with Municipal Licensing and Standards.
– §547-1.3 A: a short-term rental can’t be advertised or brokered unless the operator is registered, and the main page of the ad must prominently display the registration number. §547-1.3 B requires whoever advertises or brokers it to verify this each time.
– §547-2.2 A: a registration is valid for one year and is renewed on the anniversary of the date it was first issued. Under §547-2.2 C, a registration not renewed within 90 days of the renewal date is cancelled, and a new application is needed.
The definition sits at less than 28 consecutive days: all or part of a dwelling unit, including a bed and breakfast, used for paid accommodation for that period. Hotels, motels and student residences of publicly funded or not-for-profit institutions are excluded.
The federal line is different: less than 90 consecutive days. A stay of 28 to 89 days is a short-term rental for section 67.7, but it is outside Chapter 547’s definition. On the text, branch (b) asks whether the municipality requires registration to operate the short-term rental, and Toronto’s registration requirement reaches stays under 28 days. The provision does not say how a 28-to-89-day stay should be treated in a city whose registration stops at 28 days. If your calendar has stays in that band, take them to an accountant and work it out case by case.
💡 My own judgement: under this rule, a date is worth as much as a receipt. B is counted in days, so the day your registration took effect sets how much of A you lose. Keep the City’s registration confirmation showing your registration number and the date it was issued, each year’s renewal confirmation, and a dated copy of the listing showing when the number went onto it. If a renewal ever slips, the dates on both sides of that gap are the ones that could feed B. Without a provable start date, there is no clean way to show where the non-compliant days end.
What “no deduction” reaches, and what it leaves alone
Section 67.7(2) opens with “Notwithstanding any other provision of this Act” and says no amount is deductible in respect of a short-term rental for a taxation year to the extent it is a non-compliant amount. That opening phrase means another deduction provision elsewhere in the Act cannot be used to get the amount back in.
What it can reach. The provision speaks of amounts deductible “in respect of the use of a residential property as a short-term rental”. It does not list items. Mortgage interest, property tax, utilities, cleaning and booking platform fees are examples of costs that could sit inside A if they relate to the short-term rental use; that list is mine, not the Act’s.
What it leaves alone. The section only governs deductions. It does not say the rental income from the non-compliant days is excluded from income. On that wording, the income side is untouched, so a reading is that the income is still reported in full while part of the expenses is denied. That is an inference from what the provision does not say; confirm the reporting with an accountant.
It also leaves alone the compliant share of A (the $7,200 in the example) and days on which the property was not a short-term rental at all.
ℹ️Toronto’s 6% Municipal Accommodation Tax is a separate obligation. The City’s operator page (read in 2026) says short-term rental operators must collect and remit six per cent (6%) Municipal Accommodation Tax. Section 67.7 does not refer to it, and nothing in A × B ÷ C depends on whether it was remitted. One duty comes from Toronto’s rules, the other from federal tax law.
Before the return is filed
Two lists: what to have on file, and what to put to the person preparing the return.
- ☐Save the City’s registration confirmation that shows your registration number and its issue date.
- ☐File each year’s renewal confirmation; in Toronto a registration runs one year and renews on the anniversary of first issue (§547-2.2 A).
- ☐Take dated screenshots of each listing showing when the registration number first appeared on its main page.
- ☐Export the booking calendar with every check-in and check-out date, so stays under 28 and under 90 consecutive days can be counted.
- ☐Keep Toronto’s required transaction records for three years (§547-4.5 A): nights rented, nightly and total price, and entire-unit or partial-unit.
- ☐Ask which of the year’s costs belong in A, and how to split them if the unit also had a long-term lease or personal use.
- ☐Ask how C should count days the unit was listed but not booked.
- ☐Ask how stays of 28 to 89 days are treated where the city only requires registration below 28 days.
- ☐Ask whether the 2024 deemed-compliance rule in s.67.7(3) covers your 2024 year.
- ☐Ask how the income from non-compliant days should be reported.
The 2024 deemed-compliance window and the reassessment power
According to s.67.7(3) of the Income Tax Act, a short-term rental is deemed not to be non-compliant for the 2024 taxation year if it is located in a province or municipality that requires registration, a licence or a permit, and it complied with all applicable requirements by December 31, 2024. In practical terms, an operator who got fully registered at any point before the end of 2024 has the whole 2024 year treated as compliant under branch (b). The subsection is written for places that require registration, a licence or a permit; it says nothing about locations where the rental is not permitted at all.
The consolidated text on Justice Laws carries the note that application provisions are not included. I am not going to state a start year beyond what the section itself says; for anything before 2024, ask an accountant.
Subsection (4) sets aside the ordinary reassessment limits in s.152(4) to (5): the Minister may make any assessments, reassessments and determinations necessary to give effect to subsection (2) for any taxation year. Read together with the day-count in B, that is the plain reason the registration paperwork is worth keeping for as long as you own the property.
Short Term Rental Toronto Rules →Your Rental Sat Empty Between Tenants: Can You Still Deduct the Mortgage Interest, Property Tax and Utilities? →Building a Rental Suite or Gutting a Rental: Can You Deduct the Interest and Property Tax While the Work Is Underway? →First-Time Renter Guide →
Frequently Asked Questions
I own a condo unit. Do my condo’s rules matter for this tax rule?
Section 67.7 looks at what a province or municipality permits or requires; it does not mention condominium corporations. Separately, Toronto’s operator page says that if you live in a condominium, you must make sure your condo bylaws and rules allow short-term rentals. Whether a breach of condo rules has any tax effect is not something s.67.7 addresses, so take that question to your accountant.
Do I need to register with Toronto if guests stay 28 days or longer?
Toronto’s Chapter 547 defines a short-term rental as paid accommodation for less than 28 consecutive days, and its operator registration rule in §547-1.2 B attaches to that definition, so a stay of 28 days or more is outside it. The federal rule in s.67.7 reaches anything under 90 consecutive days, and the provision does not directly address a 28-to-89-day stay in a city whose registration stops at 28 days. If you have stays in that band, have an accountant review them.
Are Airbnb or other booking platform fees part of the expenses this rule cuts?
Section 67.7 does not list expense types; it covers amounts that would be deductible in respect of the use of a residential property as a short-term rental. If a platform fee is otherwise deductible and relates to that use, it would sit inside A and be cut by the B ÷ C fraction like any other such cost. Confirm how your fees are treated with an accountant.
My rental is outside Toronto. How do I tell whether it counts as non-compliant?
The test in s.67.7(1) refers to the province or municipality where the rental is located: whether it permits the rental at that location, and whether it requires registration, a licence or a permit. That means checking your own municipality’s short-term rental rules; this article covers only Toronto’s Chapter 547. Bring what you find to an accountant before filing.
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