A short-term rental can out-earn a lease. The number owners reach for to prove it usually cannot, because it sets gross booking revenue against net long-term rent. In Canada the distance between those two figures widened in 2024, when compliance stopped being a bylaw question and became a tax rate.
The myth: nightly rate times thirty beats the monthly rent
The arithmetic that convinces people is one line long. Take the nightly rate, multiply by thirty, hold it up against the monthly rent. The nightly side wins by a distance every time, and it should, because nothing has been taken out of it yet. The rent side has already absorbed vacancy, turnover and operating costs, since that is how landlords have been trained to think about rent.
The two numbers measure different things. One is revenue at full occupancy before any cost at all. The other is close to what lands in your account. Setting them side by side is like comparing a list price to a cheque.
Reality: a non-compliant short-term rental is taxed on gross rents
This is the change most owners have not priced in. For tax years after 2023, expenses attributable to a non-compliant short-term rental cannot be deducted. The Canada Revenue Agency defines a short-term rental as a residential property rented or offered for rent for a period of less than 90 consecutive days, and treats it as non-compliant if it sits in a province or municipality that does not permit short-term rentals at that location, or if it does not comply with all applicable provincial or municipal registration, licensing and permit requirements.
Take the deductions away and the mortgage interest, the cleaning, the platform fee, the furniture and the utilities stop offsetting anything. Tax lands on gross rents. There was transitional relief for the 2024 tax year, where becoming compliant by December 31 of that year covered the whole year, and it applied to that year alone.
The registration you have been meaning to get around to is not an administrative loose end. It decides whether you are taxed on your margin or on your revenue.
Reality: in much of the country this only works where you live
British Columbia limits short-term rentals to a host's principal residence plus one secondary suite or accessory dwelling unit on the same property, in the communities the province lists. Municipalities under 10,000 people sitting more than 15 kilometres from a larger centre fall outside the requirement, along with mountain resort areas and several other categories. That list moves: local governments can request changes each year by the end of February, with opt-outs generally taking effect June 1 and opt-ins November 1. Hosts, platforms and strata hotel platforms all have to appear in the provincial registry.
Toronto applies the same principle with tighter numbers. A short-term rental there is a stay under 28 consecutive days, permitted only in your principal residence, with one registration per dwelling unit and an annual fee listed at $390 and subject to increase. An entire-home listing is capped at 180 nights per calendar year. A partial-unit listing carries no night cap but tops out at three rooms. You hold nightly and pricing records for three years, and you collect the Municipal Accommodation Tax and remit it quarterly. The temporary increase to 8.5 per cent ended on August 1, 2026, putting the rate back to 6 per cent.
Read both paragraphs as the owner of a second unit you do not live in, and the strategy is not expensive. It is unavailable.
Reality: the revenue is a different kind of supply
Residential rent for a period of continuous occupancy of one month or more is exempt from GST/HST. Accommodation under a month is a taxable supply. Once gross taxable revenue passes $30,000 across four consecutive calendar quarters, or in a single quarter, you register, charge and remit. That tax is either added to the guest's price or it comes out of yours.
Three definitions are worth keeping straight, because they do not line up. Ninety days is the income tax test. One month is the GST/HST test. Twenty-eight days is Toronto's bylaw test. A 60-day furnished corporate let is a short-term rental for the federal deduction rule, is exempt from GST/HST, and is not a short-term rental under Toronto's bylaw at all.
There is an exit question too. CRA guidance on vacation properties describes a property that is not used primarily as the owner's place of residence, where substantially all the rentals run for under 60 days, as operating like a hotel-type establishment, and the sale of such a property can be taxable. If you run a unit as short-term accommodation for years and then sell, put that to an accountant before you list rather than after.
The six lines that make the comparison honest
- Build the long-term side first. Annual rent, minus your real vacancy and turnover, minus operating costs. That is the baseline you have to beat.
- Build the short-term side from nights sold, never from the nightly rate. Where a night cap applies, use the cap.
- Subtract the per-stay costs: cleaning, consumables, the platform's cut, and any accommodation tax you collect but do not keep.
- Subtract the annual costs a lease never carries: registration, an insurance policy that covers paid guests, furnishing spread over three to five years, utilities and internet that are now yours, and bookkeeping for a taxable business.
- Test compliance before you calculate tax. If the property cannot be registered, run the whole thing again with no deductions at all.
- Price your own hours. Guest messaging, key handover, restocking and cleaner scheduling are a job. Hiring it out is another percentage off the top.
The premium is real when it survives all six lines, and in a genuine visitor market, in a property you live in, with a registration in hand, it often does. It collapses in an ordinary residential neighbourhood where the case rests on occupancy that never turns up.
Check the rule before you check the rate
Two questions settle most of these cases in about ten minutes. Does my province or municipality permit a short-term rental at this address, and can this particular property qualify. If either answer is no, the nightly rate carries no information, and the lease is the higher-earning option by default.