Summary of New CRA Rules for Short-Term Rentals (Effective January 1, 2024)

As of January 1, 2024, the Canada Revenue Agency (CRA) has introduced new regulations concerning the deductibility of expenses for short-term rental properties. Here’s a detailed overview of these changes:

Key Changes

1. Definition of Short-Term Rentals:

• The new rules apply to property owners offering accommodations for less than 90 consecutive days.

2. Compliance Requirements:

• Non-Compliance: Rentals that do not comply with local laws or lack necessary registrations, licenses, or permits are deemed non-compliant.

• For these non-compliant rentals, property owners cannot deduct expenses for the days they operated without compliance.

3. Transitional Relief:

• Property owners can achieve transitional relief if they become fully compliant by December 31, 2024. If compliant by this date, the property will be considered compliant for the entire year, allowing for full expense deductions.

Record Keeping Obligations

Property owners must maintain comprehensive records to demonstrate compliance and substantiate their financial claims:

• Compliance with Local Authorities: Proof that the rental meets local regulations.

• Income and Expenses Documentation: Clear records of all rental income and expenses incurred.

• Segregation of Short-Term Income: Property owners must identify the portion of rental income and expenses specifically attributed to short-term rentals versus total gross rental amounts.

Example Scenario

• Situation: A property owner rents out a unit for short-term stays.

• Non-Compliance: If local laws require registration and the owner fails to register, they cannot deduct expenses for the days they operated without the necessary permits.

• Compliance by Deadline: If the owner registers and meets compliance requirements by December 31, 2024, they can deduct expenses for the entire year, despite previous non-compliance.

Conclusion

These new CRA rules emphasize the importance of adhering to local regulations for short-term rentals. Property owners must ensure compliance to benefit from tax deductions and avoid penalties. Keeping accurate records will be crucial in substantiating claims during tax assessments.

Summary of Changes to Charitable Donation Tax Deductions

On January 23, 2025, the Department of Finance released draft legislation regarding this proposed change, which will be introduced in Parliament.

Extended Deadline for Donations:

Donors can now make eligible charitable contributions until February 28, 2025, and still claim these donations on their 2024 personal income tax return.

Claiming Donations:

• If donors do not claim their donations on the 2024 tax return, they have two options:

• Claim on the 2025 Return: They can include the donations when filing their 2025 personal income tax return.

• Carry Forward Amount: Alternatively, donors can carry forward the eligible donation amounts to future tax years.

Feel free to contact us for more information!"

Filing your GST/HST return

CRA has noted that almost all returns for reporting periods that begin after December 31, 2023, with the exception of returns filed by registered
charities and selected listed financial institutions, are required to be filed electronically. The webpage stated that registrants who continue to file paper returns will be charged a penalty.

Please contact us to learn more about methods to file and avoiding filing penalties!

Post-mortem loss utilization and tax planning

A major obstacle in employing the loss realization strategy has been the requirement to recognize capital losses within the first taxation year of a graduated rate estate (GRE). On August 12, 2024, the Department of Finance released several draft legislative packages for feedback. Among these, the Technical Amendments package proposed allowing a Subsection 164(6) election, which would enable losses recognized in any of the first three taxation years of the GRE to be considered as realized in the final personal tax return. Additionally, relief from certain stop-loss rules for losses incurred by a GRE and subject to a Subsection 164(6) election would be applicable for the same three-year timeframe.

Please contact us for how this can affect Estate planning for your family

Deferral in Implementation of Change to Capital Gains Inclusion Rate

On January 31st, Finance Minister Dominic LeBlanc announced that the federal government is postponing the increase of the capital gains inclusion rate from 50% to 66.67% for capital gains above $250,000, now set for January 1, 2026. To protect middle-class Canadians from higher taxes, the government will maintain or enhance capital gains exemptions and introduce new incentives. Key measures include 

• maintaining the Principal Residence Exemption,

• introducing a $250,000 annual threshold for modest gains including sales of secondary property (effective January 1, 2026),

• increasing the Lifetime Capital Gains Exemption to $1.25 million effective June 25, 2024 on the sale of small business shares and farming/fishing property, and

• launching a Canadian Entrepreneurs’ Incentive that reduces the inclusion rate for eligible gains. This incentive would take effect starting in the 2025 tax year and the maximum would increase by $400,000 each year, reaching $2 million in 2029. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs would pay less tax and be better off on capital gains of up to $6.25 million

These changes aim to support individuals and entrepreneurs while ensuring they are not adversely affected by the new capital gains inclusion rate.

Canada Carbon Rebate for Small Businesses

The government has announced that corporations filing their 2023 tax return after July 15, 2024, and before December 31, 2024, will be eligible for a payment related to the fuel charge for the years 2019-2020 to 2023-2024. This retroactive payment is only available to Canadian-controlled private corporations (CCPCs), including Indigenous CCPCs. To qualify for this rebate, CCPCs must have filed their tax returns by the July 15 deadline and employed at least one person in a designated province with a total of 499 or fewer employees during the relevant fuel charge year. Note that British Columbia, Northwest Territories, Nunavut, Quebec, and Yukon are not designated to receive the rebate from 2019 to 2023.

Incentives for clean energy generation and conservation equipment

“Did you know…

The Government provides investment incentives for certain clean energy generation and conservation equipment used in businesses to generate income.

•  Equipment purchased after December 31, 2024 qualifies as Class 43.1, eligible for:

  •  75% depreciation (CCA) in the first year (2025/2026 only).

  •  30% annual depreciation (declining balance) afterward.
    

•  Related costs, such as pre-feasibility studies, feasibility studies, and process engineering, qualify as Canadian Renewable and Conservation Expenses (CRCE):

•  These are fully deductible in the year incurred or can be carried forward indefinitely.

•  To claim CCA:

•  The equipment must be purchased for income generation.

•  It must be available for use.
  

•  Additional tax credits and rebates include:

•  Clean Technology Investment Tax Credit (30%).

•  Provincial programs, such as: 

•   Clean BC rebate/incentive program.

•   Alberta-specific programs.

•   Rebates from BC Hydro.

Reach out to us for more information!"

Changes to the capital gains inclusion rate

The proposed changes to the capital gains inclusion rate, effective June 25, 2024, are currently subject to parliamentary approval.

In line with standard practice, the CRA is administering these changes based on the proposals outlined in the Notice of Ways and Means Motion tabled on September 23, 2024.

Under parliamentary convention, taxation proposals take effect as soon as a Notice of Ways and Means Motion is tabled, ensuring consistency and fairness for all taxpayers.

Please contact us to learn more about how this affects you!

Now operating in Calgary!

Great news!
We’ve had team members working from Alberta for a few years already, but now we can officially announce that James & McIntyre CPAs LLP has an office in Calgary.