Federal government to crack down on tax breaks for short-term rentals

Tighter tax rules designed to free up long-term housing

A narrowly focused fall fiscal update coming Tuesday from federal Finance Minister Chrystia Freeland includes a measure designed to make it less lucrative for people to use their properties as short-term rentals, the Star has learned.

Property owners in areas that already restrict short-term rentals will no longer be able to claim their rental expenses against the income they make, a senior federal official told the Star, in a bid to take away the incentive to flout local restrictions and list properties on platforms like Airbnb anyway. “This is going to change the financial equation,” the official told the Star.

The move comes as the federal government faces demands to do more to increase Canada’s housing supply as quickly as possible.

In September, Canada Mortgage and Housing Corporation said that at least 3.5 million units needs to be added — on top of what’s already being built — in order for homes in Canada to become more affordable within the next 10 years.

Stories about people forced out of their homes due to rising mortgage rates, families jammed into small rentals unable to find anything bigger and overflowing shelters have all led to pressure on the federal government to respond, even though housing remains the primary responsibility of provincial and municipal governments.

Nevertheless, the Liberals have been announcing billions in spending on housing in recent weeks, as a follow-through on previously announced programs and projects that tackle everything from getting more rental apartments built to freeing up federal lands to be used for housing. But while there will be additional funds made available in Tuesday’s fall financial update for new construction, the government is also seeking to ensure existing homes are being used in a way that helps ease Canada’s current housing crunch.

How properties can or can’t be used as short-term rentals varies by province and city, and the government hopes this new federal approach will also act as a nudge to get more municipalities on side with restrictions. The new tax measure will take effect on Jan. 1.

The fall economic statement will also include funds to help municipalities enforce existing rules.

The official declined to say how much more money will flow to housing overall on Tuesday, stressing what’s coming should not be anticipated as a budget or even a mini-budget, but a mid-year fiscal update on the government’s existing promises and priorities.

“It’s not a 10-chapter book of initiatives on all fronts,” said the official, who spoke anonymously in order to be able to disclose the government’s plans and thinking.

Those updates will include progress on promises to spur cleantechnology investment, as well as how the government intends to follow through with commitments to strengthening Canada’s competition laws in a bid to address price fixing, and an announcement of amendments to a current piece of legislation on that score.

Toughening competition law is a demand of the New Democratic Party, currently propping up the minority Liberal government through a supply-and-confidence agreement that sees the NDP vote with the government in exchange for action on their priorities.

Fall economic updates, depending on what legislation they require, can sometimes trigger confidence votes in Parliament.

The Opposition Conservatives, meanwhile, have been demanding the Liberals exercise fiscal restraint, accusing their previous spending programs of driving up inflation and the cost of living.

Tiff Macklem, governor of the Bank of Canada, also said recently that while the bank does retain control over interest rates and uses that to address inflation, the government must do its part.

Tuesday’s document will answer those calls for restraint, and will be “narrow,” the official said.

“We are consciously needing to be selective in where we are taking action and where we are announcing measures in the current macroeconomic environment.”

Ottawa is predicting much softer economic growth for Canada over the next 12 months, and with interest rates also expected to remain high, flooding the country with new spending could exacerbate the problem.

Freeland had signalled last month that measures were coming to address the short-term rental market, following an announcement by B.C. of new legislation that strengthens existing restrictions on how properties can be rented.

She said she’s seen estimates that turning short-term rentals into properties available for the longer term in Toronto, Montreal and Vancouver could immediately free up 30,000 units of housing.

“We know that short-term rentals through sites like Airbnb and VRBO mean fewer homes for Canadians to rent and live in full time, especially in urban and populated areas of our country,” she said on Oct. 17. “That is why our government is actively examining what options and tools exist at the federal level, to ensure more short-term rentals are made available as longterm rentals, as permanent homes, for Canadians to live in.”