Implications of Recent Tax Ruling for Airbnb property (Short-Term Rental) Owners.
Court rules against Ontario short-term rental owner in tax case.
Canadian homeowners might want to think twice before listing their properties on Airbnb as they might have to pay a 13% tax (HST) on the property if they sell it.
The Tax Court of Canada’s recent ruling has significant implications for Canadian property owners who use their residences for short-term rentals, particularly when they decide to sell the property. According to the decision, properties that have been primarily used for short-term rentals on platforms like Airbnb may be subject to Goods and Services Tax (GST) or Harmonized Sales Tax (HST) upon sale. Typically, the sale of a personal residence in Canada is exempt from HST. However, the court found that the frequent, short-term rental usage turned the property into a “commercial” asset, rather than a “residential complex” eligible for exemption.
The court case involved a condo owner who initially rented his property on a long-term basis but switched to short-term rentals through Airbnb in 2017. He made $11,200 in 2017 and $43,179 in 2018 through the short-term rental. When he sold the condo in 2018, the Canada Revenue Agency (CRA) assessed a 13% HST on the sale, amounting to over $77,000. The court determined that, due to its primary use as a short-term rental, the property was no longer considered a residential unit but instead aligned with commercial properties like hotels or motels. As such, it did not qualify for a residential tax exemption under Canada’s GST legislation.
The ruling serves as a warning to homeowners using platforms like Airbnb: to avoid potential tax liabilities, they may need to convert properties back to long-term residential use before a sale. However, short-term rental status at the time of sale will likely trigger HST charges. This decision highlights a need for property owners to carefully assess tax implications when altering property usage for short-term rentals.