The ruling, released Wednesday, responded to a complaint submitted to St. John's radio station CHOZ-FM over a Feb. 1 airing of an unedited version of the song, which mentions the word three times.
The complainant wrote that the song's lyrics were "extremely offensive" to gay, lesbian, bisexual and transgender people.
The council is an independent body created by Canadian radio and television broadcasters to review the standards of their content.
Co-written in 1985 by Mark Knopfler and Sting, Money For Nothing takes the perspective of a working-class man watching music videos, which were still a new medium at the time.
The song, which was the first single off of Dire Straits' album Brothers in Arms, earned the British band a Grammy for best rock performance and topped the American Billboard modern rock chart for three weeks. The song's corresponding music video, widely known for its use of then-state-of-the-art computer animation, was the first music video aired on MTV Europe.
The council's Atlantic regional panel weighed the song's "legitimate artistic usage" against the Canadian Association of Broadcaster's Code of Ethics, which in part states: "broadcasters shall ensure that their programming contains no abusive or unduly discriminatory material or comment which is based on matters of race, national or ethnic origin, colour, religion, age, sex, sexual orientation, marital status or physical or mental disability."
The council concluded that "faggot," when used to describe a homosexual man, is a word "that, even if entirely or marginally acceptable in earlier days, is no longer so."
"The societal values at issue a quarter century later have shifted and the broadcast of the song in 2010 must reflect those values, rather than those of 1985."
The panel noted that Money for Nothing would be acceptable for broadcast if suitably edited.
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