For pharmacists and pharmacy owners who have short-term rentals as a supplementary source of income, new tax regulations have come into effect as of January 1st, 2024. Those who are renting out properties on a short term basis should be aware of these changes.
Who Might Be Impacted?
These new rules pose a significant change for many people who have enjoyed the secondary income from short-term rentals or who have been using them as part of a tax strategy. Anyone engaged in Airbnbs, VRBOs, or other short-term rentals will need to review their situation and potentially reassess their plans and strategies.
If you had chosen the short-term rental option due to its convenience, profitability as a property portfolio addition, tax advantages, or a desire to steer clear of the long-term rental commitment, these recent changes could negatively impact you.
What Has Changed?
Effective January 1st, 2024, the federal government has implemented new rules that will deny income tax deductions for expenses related to short-term rental income, such as mortgage interest expenses.
This change applies to property owners in provinces and municipalities where short-term rentals are prohibited. Deductions will also be refused for short-term rental operators who are not compliant with applicable provincial or municipal licensing, permitting, and registration requirements.
There is an exemption that allows you to occasionally list your primary residence within certain restrictions, such as for a brief period when you are away on holiday. The change is more directed to those who don’t live in a property and rent it out year-round for short-term rentals.
Purpose of the Change
The goal of the change is to curb investment in certain residential real estate properties, which some critics say has led to an increase in the cost of housing in some markets. The federal government is expecting that, by disallowing the deduction of short-term rental expenses, real estate owners will be motivated to reintroduce those properties into the long-term housing market, and freeing up properties for long-term housing solutions.
What Does This Mean For Short-Term Rental Operators?
With the loss of income tax deductions, the financial viability of your rental endeavours may be called into question. It is important to understand the implications, and reassess your financial strategies to adapt with the changes.
Particularly for those in areas where short-term rentals have already been prohibited by their municipal government, such as Toronto and Vancouver, or their provincial government, such as BC and Quèbec, it may no longer be profitable to run this type of rental. If you’ve been using platforms like Airbnb to rent out properties in these regions, it’s time to reassess your financial strategies. Additionally, as more municipalities and provinces may also enact restrictions, you should stay updated on changes in your locality and be prepared to adjust as necessary.
The inability to deduct expenses associated with short-term rentals that are not properly registered could potentially push individuals into higher tax brackets, even if their rental properties are not generating significant profits. This could result in unexpected tax liabilities and financial burdens. If you currently rent through Airbnb, VRBO, or another platform without fully registering your property, you may have been previously offsetting rental income with expenses and reducing your taxes. However, since you will no longer be able to deduct these expenses in this way, going forward, you could face a significant tax liability.
This change also means that ensuring compliance with local regulations is more crucial than ever for individuals engaged in short-term rentals, as failure to do so could have significant tax implications.
Reassessing Your Strategies
For pharmacists and pharmacy owners who have been leveraging short-term rentals as a means to supplement their income, these changes could have profound effects on their financial well-being.
In light of these changes, it’s essential for pharmacists and pharmacy owners who are involved in short-term rentals to reassess their financial strategies and consider their options moving forward. This may involve exploring alternative investment opportunities or adjusting rental arrangements to comply with local regulations.
At Pharma Tax, our team of specialists understands the unique challenges faced by pharmacists and pharmacy owners in managing their finances, including those related to short-term rentals. As tax specialists familiar with these new regulations, we can guide you on what impact this change will have specifically on you and your taxes, and help you make changes to minimize your potential liabilities. We provide expert guidance on tax planning strategies tailored to your individual circumstances, assisting you in creating a plan forward.
- With The New Capital Gains Tax Changes for 2024, What are the Best Places to Tax Shelter My Money? - November 1, 2024
- Business Overhead Insurance: What it is & Why You Need It - October 18, 2024
- How Long Do I Need to Keep Receipts? - October 5, 2024
