All townships › CRA and unlicensed days

Federal rule, applies to tax years after 2023

Can CRA deny your cottage rental expenses if you're not licensed?

Yes, for the days it was out of compliance. Since the 2024 tax year, section 67.7 of the Income Tax Act denies deductions for a "non-compliant short-term rental". That's a rental where the municipality doesn't allow it, or requires a licence, registration or permit that you didn't have. [ITA s.67.7] [CRA] This page explains the rule. It isn't tax advice, so talk to an accountant about your return.

The definitions that matter

Term	What the law says
Short-term rental	A residential property rented or offered for rent for less than 90 consecutive days [source]
Residential property	Explicitly includes a cottage, as well as houses, condos, trailers and houseboats in Canada [source]
Non-compliant short-term rental	Located where the province or municipality doesn't permit it, or where registration, a licence or a permit is required and the rental doesn't comply with all of them [source]
Non-compliant amount (denied)	A × B ÷ C: A is the STR expenses otherwise deductible, B is non-compliant days, and C is days the property was a short-term rental [source]
Reassessment	CRA can reassess any year to apply the rule, regardless of the normal time limits (s.67.7(4)) [source]

The 28-day vs 90-day gap

CRA's "short-term" means under 90 days. Ontario cottage townships use shorter triggers for their licences:

Municipality	Local licence trigger	Licence name
Trent Lakes	Less than 28 consecutive days (single detached dwellings) [source]	STRA Registration
Kawartha Lakes	Less than 28 consecutive days [source]	STR Accommodation Business Licence
Muskoka Lakes	28 consecutive calendar days or less [source]	STRA Licence
Kingston	See the Kingston page	STR Operator's Licence

A 6-week rental is a "short-term rental" for CRA but may not need a local licence. If the municipality doesn't require one for that length of stay, that stay isn't non-compliant just because it's under 90 days. Under-28-day stays without the required licence are the risk.

A cottage example (hypothetical numbers)

An un-hosted Kawartha Lakes cottage held a summer licence that expired October 31. The owner kept the listing live and the winter licence was issued 20 days later. The cottage was offered as a short-term rental all 365 days of the year, with $18,000 of STR expenses.

A: STR expenses otherwise deductible	$18,000
B: non-compliant days	20
C: days it was a short-term rental	365
Denied: A × B ÷ C	$18,000 × 20 ÷ 365 ≈ $986

Illustrative only. The formula is from s.67.7(1). The numbers are invented for the example. Under the Kawartha Lakes by-law, advertising counts as operating (s.2.010), which is why the live listing matters here. [source] CRA's own worked example uses a condo licensed partway through 2025. [source]

The bigger risk is a whole year with no licence. Then B equals C and every STR expense for that year is denied.

2024 transition relief

For the 2024 tax year only, a rental that met all registration, licensing and permit requirements by December 31, 2024 is deemed compliant for all of 2024 (s.67.7(3)). That relief doesn't apply to 2025 or later. [source] [source]

Records worth keeping

CRA says taxpayers should keep records showing the property was in a place that permits short-term rentals and complied with all licensing requirements. [source]

Every licence or registration certificate, with the issue and expiry dates visible
Application submission confirmations and payment receipts (dates matter for B)
Renewal emails or notices, for example Muskoka Lakes' 60-day notice
Seasonal screenshots of each listing showing the licence number
Booking calendars showing blocked dates during any licence gap
Insurance certificates covering the licence period

Questions owners ask

Does CRA's short-term rental rule apply to cottages?

Yes. The Income Tax Act definition of residential property in s.67.7 explicitly includes a cottage. A short-term rental is one rented or offered for rent for less than 90 consecutive days.

Which years does the expense denial apply to?

Tax years after 2023. For 2024 only, a rental that complied with all licensing requirements by December 31, 2024 is deemed compliant for the whole year.

How much of my expenses can CRA deny?

The non-compliant amount: total short-term rental expenses multiplied by non-compliant days, divided by the days the property was a short-term rental (A × B ÷ C).

Can CRA go back more than three years?

Section 67.7(4) lets CRA make any assessment or reassessment needed to apply the rule, notwithstanding the normal reassessment limits in subsections 152(4) to (5).