Why Short-Term Rental Expenses May Be Denied

Key Items to Watch

None of the measures mentioned in the 2023 Fall Economic Statement have received Royal Assent. They are not factual until they do, but this gives us a good measure of items to keep an eye on about our personal financial and tax planning.

Source: RBC Family Office Services

For Individuals

Take-Home Pay

There are no proposed changes to existing tax rates.

Keep in mind that tax brackets normally rise with inflation, meaning that the same amount of income in 2023 would pay less tax in 2024. There were large increases in the income tax brackets in 2023, meaning Canadians earning the same income as they did in 2022 will pay less income tax in 2023.

There are increases in the CPP maximum as well as enhanced CPP deductions for higher-income earners (this was not part of the 2023 Fall Economic Statement).

This means that though there will be fewer taxes payable, more deductions from paychecks will affect take-home pay for employees. This is to offset increased CPP payments to those claiming CPP benefits. We expect this trend to continue.

Changes to the Alternative Minimum Tax are proceeding as previously mentioned in tax updates.

Short-term Rentals

Short-term Rentals who are not operating above board may have all operating expenses, including interest paid and depreciation claims, denied.

This is part of a crack-down on short-term rentals operating against Municipal and Provincial laws and not complying with licensing and other regulations.

If you operate a short-term rental, ensure you adhere to all of the laws and regulations that apply to you to avoid paying unnecessary taxes. This would take effect from January 1, 2024.

This action seems to drive more units into long-term rentals and provide near-term benefits in reducing the housing crisis.

It is not a complete solution and does not mean there will be a decrease in rents.

Underused Housing Tax (UHT)

The government has heard the frustration of Canadians trying to navigate compliance with the UHT and made some changes. It has become a lot easier to determine if this applies to you, and they have even prepared a little tool that can help, linked here.

In addition to making it simpler for Canadian individuals to understand if this rule applies to them, they are proposing to make the path clearer for “specified Canadian corporations, partnerships, and trusts.”

They are also proposing to reduce the minimum penalties for failing to submit the UHT forms, should they apply to you, to $1,000 for individuals and $2,000 for trusts.

Removing GST/HST from Certain Items

There are also proposals to remove GST from psychotherapy and counselling services, as well as from new home construction.

For Businesses

Employee Ownership Trusts

The 2023 Federal Budget introduced tax rules to allow for the creation of Employee Ownership Trusts.

This would allow business owners to sell to their employees without creating a significant financial or compliance burden on the individual employees.

Essentially, the trust owns the corporation and the employees are the beneficiaries of the trust, providing an additional succession planning option that puts control in the hands of the employees.

To encourage this, the proposal is a Capital Gains tax exemption of $10 million, a huge incentive for business owners to build businesses that create jobs and then sell them to the employees.

There will be conditions required to take advantage of this, and the proposal is for the 2024 to 2026 tax years.

CEBA Loan Repayments

Canadian Emergency Business Accounts loan repayments were extended to January 18, 2024.

There are refinancing measures available for small businesses to still take advantage of the debt forgiveness of up to $20,000 while transitioning their outstanding CEBA loans into 3-year term loans at 5% with the institution from whom they originally set up the account.

Clean Energy Investment Tax Credits

Some small investment tax credits are proposed that incentivize investment in equipment that uses waste biomass or clean hydrogen.

Keep In Mind…

There is a lot more to the 2023 Fall Economic Statement than what we’ve included in this article, and none of it is real until the laws are proposed and receive Royal Assent.

If you think any of these situations apply to you and need help, as always, don’t hesitate to contact our team!


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