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Get My Free Estimate →The real exposure is on the sale. The definition of “residential complex” in section 123(1) of the Excise Tax Act excludes a hotel-like building where “all or substantially all” of the arrangements are for periods of continuous possession of less than sixty days — read by CRA as 90 per cent or more. Because Schedule V, Part I, section 2 exempts the sale of a used residential complex, losing that status can make the sale taxable. Note three different thresholds: one month for whether rent is exempt, 60 days for residential complex status, and 90 days under section 67.7 of the Income Tax Act, which denies deductions for a non-compliant short-term rental on income earned after 2023 and overrides the normal reassessment limitation periods.
Owners of short-term rentals worry about income tax and about municipal licensing. The expensive surprise is neither. It is HST on the sale of the property.
The definition of “residential complex” in the Excise Tax Act excludes a building similar to a hotel, motel, inn, boarding house or lodging house where “all or substantially all of the leases … provide … for periods of continuous possession or use of less than sixty days”.
The sale of a used residential complex is exempt under Schedule V, Part I, section 2. Lose that status through short-term use, and the exemption has nothing to attach to — the sale can become taxable. On an Ontario property that is 13 per cent of the sale price.
Three different thresholds, in three different statutes
This is why the area is so badly understood. The number that matters depends entirely on which question you are asking:
| Threshold | What it governs | Source |
|---|---|---|
| One month | Whether the rent is exempt from GST/HST | Excise Tax Act, Schedule V |
| 60 days | Whether the building keeps residential complex status — and so whether a sale is exempt | Excise Tax Act, s.123(1) |
| 90 days | Whether deductions are denied for a non-compliant short-term rental | Income Tax Act, s.67.7 |
“All or substantially all” is read by CRA as 90 per cent or more. So a building where 90 per cent or more of the arrangements are for stays under 60 days is at risk of losing residential complex status.
Long-term rent is exempt; short-term accommodation is not
Residential rent for a period of continuous occupancy of at least one month is exempt. Short-term accommodation is a taxable supply. Once your taxable supplies exceed the small supplier threshold, you are required to register and charge GST/HST on the nightly rate.
Converting a long-term rental to short-term use, or the reverse, can also trigger change-in-use rules with their own self-supply and input tax credit consequences.
The 2024 deduction denial
Separately from GST/HST, section 67.7 of the Income Tax Act denies deductions in respect of income from a non-compliant short-term rental — broadly, one operating where a province or municipality does not permit it or where a required registration or licence is not held.
It applies to income earned after 2023, is pro-rated by the number of days in the year the rental was non-compliant, and — the part that should worry people — subsection 67.7(4) overrides the normal reassessment limitation periods. The usual comfort that old years eventually close does not apply here.
Put that beside the municipal licensing rules and the picture sharpens: operating without the required licence is no longer just a by-law risk with a by-law fine. It can disallow every expense against that income, for years that would otherwise be closed.
An honesty note about this page
The sale point above is built from the statute, not from a current CRA publication. The CRA memorandum that discusses residential complex status dates from February 1998, the relevant info sheet from February 2007, and the Agency’s current accommodation-sharing page is silent on the sale question. The statutory analysis is straightforward, but there is no recent administrative guidance confirming how CRA applies it to a modern short-term rental, and I am not going to imply there is. If you are approaching a sale, this is a question for a tax professional with the specific facts, and it is worth asking early.
What to do
- Track the length of every stay. The 60-day test turns on the pattern of your arrangements, so the records are the evidence.
- Get the licensing right. Section 67.7 makes non-compliance a tax problem, not just a by-law one.
- Watch the registration threshold as short-term revenue grows.
- Raise the sale question before you list, not during conditions. If the property may have lost residential complex status, that changes the net proceeds materially.
- Take advice before converting a long-term rental to short-term use, or back.
Own a short-term rental and thinking about selling?
The question of whether your property is still a residential complex for GST/HST purposes should be answered before you list, because if the answer is no it changes your net proceeds by a very large number and it changes how the deal should be structured. It is a tax question rather than a real estate one, and it needs an accountant with your actual booking records. What I can do is make sure it gets asked at the right time rather than discovered on closing.
connect@jatindua.com · 437-987-1925 · Book a free consultation
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Frequently asked questions
Do I charge HST on a short-term rental in Ontario?
Short-term accommodation is a taxable supply rather than an exempt one. Residential rent is exempt where the arrangement is for a period of continuous occupancy of at least one month; accommodation for shorter periods is taxable. Once your total taxable supplies exceed the small supplier threshold you are required to register for GST/HST and charge it on the nightly rate.
Can HST apply when I sell a property I used as a short-term rental?
It can, and this is the point most often missed. The definition of residential complex in subsection 123(1) of the Excise Tax Act excludes a building or part of a building that is similar to a hotel, motel, inn, boarding house or lodging house where all or substantially all of the leases, licences or similar arrangements provide for periods of continuous possession or use of less than sixty days. The exemption for selling a used residential complex sits in Schedule V, Part I, section 2, so where the property is not a residential complex that exemption cannot apply. Note that the current Canada Revenue Agency guidance on this point is old — the relevant memorandum dates from February 1998 and the info sheet from February 2007 — so anyone approaching a sale should take specific advice.
What does “all or substantially all” mean?
The Canada Revenue Agency reads all or substantially all as ninety per cent or more. In this context it means that where ninety per cent or more of the leases, licences or similar arrangements for the building provide for periods of continuous possession or use of less than sixty days, the building falls within the hotel-like exclusion from residential complex status.
What is the difference between the one month, sixty day and ninety day thresholds?
They govern three different questions in two different statutes. One month is the threshold for whether residential rent is exempt from GST/HST. Sixty days is the threshold in the definition of residential complex in the Excise Tax Act, which determines whether a sale can be exempt. Ninety days is the threshold used in section 67.7 of the Income Tax Act for the denial of deductions for non-compliant short-term rentals. Applying the wrong one is the most common error in this area.
What is the deduction denial for non-compliant short-term rentals?
Section 67.7 of the Income Tax Act denies deductions in respect of income earned from a non-compliant short-term rental, broadly one operating where the province or municipality does not permit short-term rentals at that location or where a required registration, licence or permit is not held. It applies to amounts of income earned after 2023 and is pro-rated by the number of days in the year that the rental was non-compliant. Subsection 67.7(4) overrides the normal reassessment limitation periods, so years that would otherwise be closed can be reassessed.
Related reading
- The foreign buyer ban: what it actually catches
- The Underused Housing Tax is gone — but not for 2022 to 2024
- Bare trusts and T3 reporting: where it stands now
- Turning your home into a rental: the section 45(2) election
Sources
Every figure on this page traces to one of these, and each was read on 1 September 2026. Primary sources only — statute, regulation, and the government or agency that administers the rule. Where I could not verify something from a primary source, the page says so instead of guessing.
- Excise Tax Act, R.S.C. 1985, c. E-15. Justice Laws Website, read 2 September 2026. The definition of residential complex in subsection 123(1) excludes a building or part of a building that is similar to a hotel, motel, inn, boarding house or lodging house where all or substantially all of the leases, licences or similar arrangements provide for periods of continuous possession or use of less than sixty days. Schedule V, Part I, section 2 exempts the sale of a used residential complex, so a property that has lost residential complex status through short-term use falls outside that exemption. Accessed 1 September 2026.
- Income Tax Act section 67.7, non-compliant short-term rentals. Justice Laws Website, read 2 September 2026. Denies deductions in respect of income earned from a non-compliant short-term rental, applying to amounts of income earned after 2023 and pro-rated by the number of days in the year the rental was non-compliant. Subsection 67.7(4) overrides the normal reassessment limitation periods. The provision uses a ninety day threshold for short-term rental, which is different from both the one month threshold for GST/HST on rent and the sixty day threshold for residential complex status. Accessed 1 September 2026.
- Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). Justice Laws Website, read 2 September 2026. Section 45(1) sets out the deemed disposition on a change of use; section 45(2) and 45(3) provide the elections; section 45(4) deems a section 45(3) election not to have been made where capital cost allowance was claimed. The four-year limit is in paragraph (d) of the definition of principal residence in section 54, and section 54.1 removes it where an arm’s length employer relocation applies and the taxpayer moves back in, subject to a forty kilometre test. Section 212(1)(d) imposes the twenty-five per cent withholding on rent paid to a non-resident, section 215(6) makes a person who fails to withhold liable for the whole amount, and section 216 provides the election to file a Canadian return on net rental income. Accessed 1 September 2026.
- Budget 2025 Implementation Act, No. 1, S.C. 2026, c. 3. Justice Laws Website, current to 21 June 2026 and last amended 14 June 2026. Sections 167 and 168 eliminate the underused housing tax and the filing requirement for 2025 and subsequent years. Section 169(1) repeals the Underused Housing Tax Act, and section 169(2) provides that the repeal comes into force on 1 January 2035, so the Act stays on the books until then. Section 90(2) enacts the new Income Tax Act subsection 215(1.2) relieving residential tenants of the requirement to withhold, deemed in force 12 August 2024. Accessed 1 September 2026.
About the author — Jatin Dua, Broker of Record
I’m the Broker of Record at RE/MAX Quantum Realty, 799 The Queensway in Etobicoke. I am not an accountant, a tax lawyer or an immigration lawyer, and nothing on this page is advice about your own position. Anything that turns on your residency, your corporate structure or your filing history goes to a professional who can see the whole picture.
What I can do is read the statute and the Canada Revenue Agency’s own material and quote them accurately, with the section number and the date the source carries. Tax rules in this area change fast and a great deal of what circulates online is describing law that has since been amended, deferred or repealed. Where that is the case, the page says so. connect@jatindua.com or 437-987-1925.