The Canada Revenue Agency (CRA) continues to intensify its focus on Ontario’s real estate sector, targeting both investors and homeowners. With new legislative measures, enhanced enforcement, and advanced data analytics, the CRA is addressing tax compliance in property transactions, rental activities, and ownership structures. If you’re buying, selling, or renting property in Ontario, several major tax changes are on the horizon. These include tighter GST/HST compliance, stricter anti-flipping rules, and a proposed increase to the capital gains inclusion rate. Whether you are an investor, developer, or homeowner, understanding these developments is essential for effective tax planning and risk management.
Historically, the CRA has viewed Ontario’s real estate market as a high-risk area for tax non-compliance, particularly in the Greater Toronto Area. Audits have uncovered significant unreported income, improper GST/HST claims, and misuse of the principal residence exemption. In response, the CRA has increased audit activity and leverages data from land registries, municipalities, and digital platforms to identify non-compliance. The 2024/2025 period brings further legislative changes, including:
Income from short-term rentals (e.g., Airbnb, VRBO) is fully taxable. New rules deny expense deductions for non-compliant rentals such those not permitted under municipal bylaws.
Short-term rental operators may be required to register for, collect, and remit GST/HST on their income. In many cases, digital platforms are now responsible for handling tax collection and remittance on behalf of hosts. Despite this, operators are still expected to ensure proper GST/HST registration and overall compliance.
Also, it’s worth noting that converting a principal residence to a short-term rental, or vice versa, may trigger a deemed disposition for tax purposes, with potential capital gains implications or the recapture of previously claimed exemptions. GST/HST may also apply to residential properties when they are first leased or used for residential purposes. Failure to self-assess can result in significant tax liabilities and penalties.
Effective January 1, 2023, profits from selling residential property, including rental property, owned for less than 12 months are deemed business income. They are not treated as capital gains unless the sale results from a qualifying life event, such as death, divorce, or job relocation.
The anti-flipping rule denies the principal residence exemption and subjects the entire gain to full income inclusion and taxation at marginal rates. The rule also applies to assignment sales and may be extended to certain corporate transactions.
The CRA is increasingly challenging claims for the principal residence exemption (PRE), especially where there is evidence of frequent sales, short holding periods, or insufficient documentation of actual use as a primary residence. Taxpayers must maintain robust records to substantiate their claims, including evidence of occupancy, address changes, and intent.
The 2024 federal budget proposed increasing the capital gains inclusion rate from 50% to 66.67% for corporations and trusts. The increase would also apply to individuals with annual gains exceeding $250,000. As of the time of writing, these changes have not yet been enacted. However, they may take effect in 2024 or 2025.
Until enacted, the inclusion rate remains at 50%. Investors should monitor legislative updates, as an increase would significantly impact the after-tax proceeds from the sale of investment and rental properties. Higher inclusion rates will increase the tax burden on capital gains, making tax planning and timing of dispositions more critical.
For 2023 and subsequent years, the definition of “excluded owner” has been broadened. Most Canadian citizens, permanent residents, specified Canadian corporations, specified Canadian partnerships, and specified Canadian trusts are now excluded owners and are not required to file a UHT return or pay the tax. This change addresses previous confusion for co-owners, estate planning arrangements, and certain corporate structures.
The UHT also now includes new exemptions for vacation properties (with additional conditions for 2024), employee accommodations in eligible areas, and certain prescribed properties (e.g., condominium units held for long-term rental in large buildings).
Minimum penalties for late UHT filings have been reduced to $1,000 for individuals and $2,000 for corporations, retroactive to 2022. The CRA has also provided administrative relief for late filings in 2022 and 2023.
Ontario’s real estate sector faces heightened scrutiny from the CRA, with new rules and enforcement measures targeting common areas of non-compliance. Investors and homeowners must be proactive in understanding their tax obligations, maintaining robust documentation, and seeking professional advice when needed. Staying informed and compliant is essential to avoid costly penalties and to optimize after-tax returns in a rapidly evolving regulatory environment.
Schedule a call today with one of our team members to discuss your accounting or tax needs – For More Details, Click Here.
This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.
GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30 provides audits and reviews of financial statements, compilations of financial information, and corporate tax returns. We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.
If you would like to schedule a call to discuss your accounting or tax needs with one of our team members, please complete the free, no-obligation meeting request on this page.
