Vacation Rentals in the Age of Platform Regulation

For years, short-term rentals felt straightforward: list a property, attract guests, manage turnover, and bank the income. In 2025, that equation is getting more complicated. A new layer of platform regulation—ranging from Ontario’s Digital Platform Workers’ Rights Act to stricter city bylaws and expanded vacancy taxes—means hosts must look beyond occupancy and nightly rates.

This isn’t necessarily bad news. It simply means that to remain profitable, vacation rental investors need to plan for compliance costs, price with precision, and budget for risks that weren’t on the radar a few years ago.

This article breaks down the major regulatory shifts, their ripple effects on short-term rentals, and how to adapt your numbers so your investment continues to make sense.

Why a gig-work law matters for vacation rental hosts

On July 1, 2025, Ontario’s Digital Platform Workers’ Rights Act (DPWRA) came into force. The law was designed for workers in ride-share, delivery, and courier services, but its impact extends far beyond those sectors. Platforms like Uber, Lyft, and DoorDash must now comply with rules that guarantee minimum wage, protect tips, and prevent unfair deactivation.

At first glance, this might seem irrelevant to vacation rentals. After all, Airbnb hosts aren’t “digital platform workers” under the law. But the key is in how platforms adapt.

When companies are required to pay workers more, provide transparency, and manage compliance costs, they often pass those costs down the chain. In practice, this could mean:

• Higher service or processing fees on bookings.

• Administrative costs for handling tax remittance.

• Less flexibility in platform policies.

  
  

Even small increases matter. If platform fees rise by 2–3%, that can trim several hundred dollars off annual net returns for a typical Toronto host.

Investor takeaway: While the DPWRA doesn’t govern short-term rental hosts directly, its ripple effects are real. When you run your numbers for 2025 and beyond, leave room for platform fee creep.

Toronto’s short-term rental bylaws: the non-negotiables

If you own or operate in Toronto, short-term rentals are tightly regulated. The city’s framework is designed to ensure that STRs serve as home-sharing, not professionalized hotel equivalents.

The essential rules include:

• Principal residence only. You can only operate a short-term rental from the home you live in most of the year. No multi-unit portfolios or second homes.

• Annual registration. Every host must register with the City and display their registration number on listings. Renewals are required to keep operating legally.

• Licensing for platforms. Platforms themselves, like Airbnb and VRBO, are licensed and must enforce city rules. Non-compliant listings risk suspension.

• Municipal Accommodation Tax (MAT). Effective June 1, 2025, the MAT rate on short-term rentals increased to 8.5%, up from 6%. This higher rate applies until July 31, 2026.

  
  

The MAT is typically charged to the guest, but it is the host’s responsibility to ensure it is collected and remitted properly. Platforms often facilitate this process, but you remain accountable for compliance.

Investor takeaway: Toronto isn’t a free-for-all market. Think of STR income as supplemental, tied to your principal residence, with strict guardrails around eligibility and taxation.

Vacancy taxes: local and federal layers

In addition to nightly taxes, owners also need to navigate vacancy-related rules. These are designed to discourage homes from sitting empty in a market facing affordability challenges.

• Toronto Vacant Home Tax (VHT). Every property owner must file an annual declaration. If your property is deemed vacant for more than six months without an exemption, the tax applies at a rate of 3% of the property’s assessed value (as of the 2024 status year, billed in 2025).

• Federal Underused Housing Tax (UHT). This 1% annual tax applies primarily to non-resident, non-Canadian owners, though some Canadian-owned entities also fall within its scope. Importantly, even if you owe no tax, you may still be required to file a return.

• New federal rules on deductions. As of the 2024 tax year, expense deductions for short-term rentals can be denied if the STR is not operated in compliance with local bylaws. That means if you skip registration or operate outside of principal residence rules, you could lose the ability to deduct normal expenses like cleaning, maintenance, and even mortgage interest.

Investor takeaway: Treat tax compliance as part of your investment strategy. The penalties for missing filings or failing to comply aren’t just fines—they can erode after-tax returns in ways that turn a profitable property into a liability.

A worked example: what the numbers look like in 2025

Let’s consider a Toronto condo that qualifies as a principal-residence short-term rental. The host rents it out 60 nights per year at an average of $220 per night. Cleaning fees are passed directly to guests, but the host pays platform and processing fees plus standard overhead.

Sample pro-forma (host perspective):

• Gross booking value (before MAT): 60 nights × $220 = $13,200

• Platform & processing fees (16%): −$2,112 → $11,088

• Annual overhead (supplies, linens, minor repairs): −$1,000 → $10,088 net before tax

What this does not include:

• MAT at 8.5%. Passed through to guests but administered by the host. Depending on the platform, there may be fees or administrative costs related to collection and remittance.

• Vacancy tax risk. If the property is deemed vacant under VHT rules, the tax can easily outweigh all rental income in a year.

• Platform fee increases. Each additional 1% in platform fees reduces net income by about $132 in this scenario. A 3% increase trims nearly $400 from annual profits.

Investor takeaway: The headline revenue number isn’t what matters. After layering in fees, overhead, and tax risks, the net figure can look very different.

STR vs. long-term rental: which is smarter now?

With new rules and taxes, the decision between maintaining a short-term rental or shifting to a long-term lease is less straightforward. A quick side-by-side comparison helps:

Compliance complexity

• STR: Requires registration, MAT filings, calendar management, guest operations, and tax vigilance.

• LTR: Simpler; standard tenancy compliance with less day-to-day admin.

Cash-flow volatility

• STR: Seasonal swings, more sensitive to occupancy and fee shifts.

• LTR: Steadier monthly income.

Tax sensitivity

• STR: Must remain fully compliant to preserve deductions; multiple layers of tax.

• LTR: Conventional expense treatment when compliant.

Lifestyle value

• STR: Offers flexibility for personal use, provided it remains your principal residence.

• LTR: Locks in predictability but less personal flexibility.

If your projected STR returns only exceed long-term rental income by 10–15% after accounting for fees, MAT, and a vacancy-tax buffer, the long-term option may be more attractive in 2025–2026.

Your compliance and budgeting checklist for 2025

To operate profitably and avoid surprises, every host should:

• Confirm principal residence status and keep registration up to date.

• Collect and remit MAT at 8.5% for eligible stays.

• Calendar your Vacant Home Tax declaration each year to avoid penalties.

• Assess your Underused Housing Tax filing obligations, even if no tax is owed.

• Keep detailed records of bookings, tax remittances, and expenses to protect your position in case of audit.

• Model a 2–3% fee buffer in your pro forma to account for platform changes post-DPWRA.

The bottom line

Vacation rentals can still be a valuable part of a portfolio, but the landscape has changed. Ontario’s Digital Platform Workers’ Rights Act has reshaped platform costs, Toronto’s bylaws restrict STRs to principal residences, and new taxes—both municipal and federal—demand accurate filings and tighter compliance.

For physician investors, the question isn’t just whether STRs generate attractive gross revenue. It’s whether, after fees, taxes, and compliance, the net return still beats alternatives like long-term leasing or reinvesting capital elsewhere.

With careful planning, STRs can continue to provide supplemental income and lifestyle flexibility. But in 2025 and beyond, success depends less on nightly rates and more on disciplined compliance and conservative budgeting.

Thinking about launching or pivoting a short-term rental? With Medvisory, you gain a trusted partner focused on guiding physician investors toward sustainable and profitable real estate strategies