Short answer
For income earned after 2023, federal tax rules can deny expense and capital-cost-allowance deductions attributable to a non-compliant short-term rental for the period of non-compliance.
Why this question matters
The property produces bookings, but local licensing or registration is missing. The owner assumes the mortgage interest and operating costs remain deductible because rent was reported.
What the official rule or guidance says
CRA says section 67.7 can deny deductions related to a non-compliant short-term rental—generally accommodation rented for fewer than 90 consecutive days—when provincial or municipal operating, licensing or registration requirements are not met.
What this does not mean
This does not determine whether a mortgage lender will finance the property or whether a municipality will permit the use. Compliance can be fact-specific, and tax calculation belongs with a qualified accountant.
A practical Ontario example
Illustration only: An owner operates a short-term rental for part of the year without the required municipal registration. Reporting gross income does not necessarily preserve deductions for interest, utilities and other expenses during that non-compliant period.
Practical next steps
Before relying on projected net income, confirm municipal zoning, licensing, condo rules, insurance and tax treatment. If compliance was restored, have an accountant determine the affected period and records. Then ask the mortgage lender whether short-term rent is acceptable income.
Questions to ask before relying on the answer
- Is this an insurer, tax, legal, regulator or individual lender rule?
- Does it apply to an insured, insurable or uninsurable mortgage?
- How will the lender document and calculate the rent on this exact property?
- Which facts are confirmed, and which are still assumptions?
- What is the lowest-cost workable path through A, alternative/B, MIC or private lending?
Rajiv’s broker perspective
Rental files should be tested, not guessed. I would separate the legal and tax questions from the mortgage calculation, prepare one clean property schedule and then compare suitable lender policies. A strong result is not simply the largest approval—it is a mortgage the client can carry through vacancy, repairs, renewal and a realistic exit.
Related: Mortgage Knowledge Centre · Real Estate Centre · Updates & Rules Centre
Want the rental file tested before you make a decision?
Bring the property numbers, current mortgages and income documents. Rajiv can compare the practical A, alternative/B, MIC and private paths and identify which questions need an accountant or lawyer.