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A Guide to Tax Deductions on Vacation Rentals in Nova Scotia

Key Takeaways

  • New regulations will affect short-term rental rules in Nova Scotia starting in spring 2024. Registration fees will increase depending on the location of the rental and the size of the community.
  • The Hotel Sales Tax in Nova Scotia is 15%. The Canadian federal government states that all rental business owners must collect taxes and report all payments and rental income by June 15, 2024, if they are self-employed or by April 30, 2024, for income tax.
  • Rental income is a taxable income. Homeowners may claim deductions on their rental income, including property taxes, during the period the vacation property was leased.

Published on Apr 23, 2024 | Updated on Apr 23, 2024

An outline of the province of Nova Scotia with VRBO and Airbnb location pins on it to show short-term rentals in the state.

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Nova Scotia is a province defined by its maritime allure. Located along Canada’s Atlantic coast, it has many gems, including Cape Breton Island––a rugged beauty renowned for its Celtic heritage. Further offshore is Nova Scotia’s Sable Island, a remote destination harboring wild horses and diverse wildlife.

In Nova Scotia, there’s a special place for each kind of traveler. Whether you’re renting your primary residence as a vacation rental or thinking about it, it’s essential to learn your tax reporting obligations as a vacation homeowner. 

What’s considered a short-term rental?

A short-term rental (STR) is any vacation lodging leased to guests for 30 consecutive nights or less. 

New rules on short-term rentals will come into effect in the spring of 2024 in Nova Scotia. The tweaks in the rules for short-term rentals, like Airbnbs and VRBO rentals, will increase the registration fees tied to the size of the community. This move aims to curb the number of short-term rentals to nudge properties back into the long-term rental inventory, hopefully easing the housing crunch. Fees may vary from $10 for units in principal residences to $3,600 in Central Halifax, including downtown Halifax. 

When should I report the rental income for my short-term rental?

In Canada, the income tax year kicks off on January 1 and wraps up on December 31, making a full year of rental income. Your income taxes are due by April 30 for the previous year. If you’re self-employed, the deadline is June 15, 2024. Below are the deadlines for filing your income taxes to the Canada Revenue Agency (CRA).

February 29, 2024

Retirement Savings Plan (RRSP)
Pool Registered Pensions (PRPP)

April 30, 2024

Deadline to file your taxes for the 2023 tax year.

June 15, 2024

Deadline for married or common-law partners who are self-employed.

Do I always need to report my rental income?

In Canada and most other countries, failing to pay taxes on income may result in tax evasion, which can have serious repercussions. Vacation property owners need to report their rental income. However, there are some circumstances where you might be exempt if you can provide valid proof through documentation to the Canadian federal government.

If you are cost-sharing with a relative to split the expenses of a mortgage, you may not have to report the income. If your rental expenses outweigh the sum of the rental income, you may not have to report your earnings and can’t claim deductions.

The good news for those reporting rental income is that deductions can provide a sense of financial security. 

How do I report rental income for my short-term rentals?

The CRA suggests using the T776 Form to report rental earnings. This form is helpful because you will list all of your deductible expenses and it will help determine what you owe and where you will see financial relief.

Here are detailed instructions for completing a T776 Form. To help you get started, follow these three steps to accelerate the tax filing process. 

Step 1: Gather the proper forms

Ensuring you have all essential forms, receipts, and financial documentation readily available and have maintained an organized record of operational expenses is vital when starting the tax filing process.

Step 2: Determine if you are earning a rental or business income

Any investment that earns profits with minimal effort is considered a passive income. In the view of the CRA, homeowners leasing vacation rentals usually earn a passive income.

Conversely, when you’re actively involved in overseeing all rental operations, such as advertising, cleaning, scheduling regular maintenance, and providing on-site meals and routine services, that may fall under a business earning a business income, also known as an active income.

Step 3: Reporting earnings from short-term rentals

Report your rental income and all of your deductible expenses on the T776 Form. Having all the essential forms and information will help you accurately report your gains and losses. Capital loss can impact your tax implications, potentially balancing out gains and reducing your tax liability. Certain expenses associated with rental operations may be deductible, such as property management fees, depreciation, cleaning, or maintenance costs.

Key tax deductions for short-term rentals

One of the perks of having an RRSP is that when you put money into it, you may lower the amount of money the government taxes you. For example, if you earn $60,000 and put $5,000 into your RRSP, you will only get taxed for the $55,000. Instead, you pay taxes on the money inside your RRSP when you withdraw it—most people do this when they retire, and the taxes commonly end up being less.

The Canadian federal government views some rental expenses as deductible expenses. Current expenses are costs incurred from services that maintain your property’s condition, including gutter cleaning, routine cleaning, painting, and seasonal maintenance. It’s essential to be organized with all expenses to maximize your income tax deductions. Other deductible expenses you may be eligible for include: 

  • Property taxes
  • Advertising
  • Office supplies
  • Insurance premiums
  • Business expenses
  • Repairs and maintenance
  • Capital expenses
  • Travel 

Anyone leasing rental properties may deduct property taxes during the period the rental property was leased.

FAQ: Rental property tax deductions in Nova Scotia

Each provincial government may have its own nuanced rules, so it’s important to consult a tax professional. Generally, you may deduct the following expenses when reporting your rental income:

  • Property taxes during the period the rental is leased
  • Maintenance, cleaning, renovation, and repair fees
  • Insurance premiums
  • Business expenses related to the rental

In Canada, you generally can’t deduct expenses associated with a rental property if you do not have a rental income. The CRA usually wants you to report an income before allowing deductions to offset that income.

The Hotel Sales Tax in Nova Scotia is 15%. Airbnb typically collects and remits taxes in many of Canada’s provinces. For a detailed list, see Airbnb’s tax collection policy in Canada.

If you own a rental business, you will need to collect and remit these taxes.

Our final thoughts

Are you thinking about whether to handle a long-term rental or a short-term stay? Take a peek at our guide to weigh the lower risks linked with temporary stays and the chance for big income tax deductions tied to long-term rental costs.

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