If you’re renting out your home on Airbnb or similar platforms, you might face a major tax bill when you decide to sell. A recent ruling from the Tax Court of Canada says that homeowners who frequently rent their properties for short-term stays will be hit with a 13% HST when they sell. This could mean tens or even hundreds of thousands of dollars in taxes.
What Does This Mean for Ontario Homeowners?
Typically, selling a residential home in Canada is HST-exempt. However, this ruling now applies HST to any property that’s been consistently rented out on short-term platforms like Airbnb or Vrbo. This includes condos, townhouses, and single-family homes that have been used for frequent, short-term rentals.
The tax would apply to the entire sale price, so a significant portion of the profits from the sale could go to the CRA. For those who view short-term rentals as a lucrative side hustle, this decision adds a costly new dimension to consider.
Why the New HST Requirement?
The court’s ruling clarifies that using a property mainly for short-term rentals reclassifies it from a residential to a commercial property, making it subject to HST. According to Ontario law firm Pallett Valo LLP, this ruling stresses the need for property owners to weigh tax implications before switching to short-term rentals.
The recent case involved an Ottawa condo owner who, after a decade of long-term rentals, shifted to short-term Airbnb rentals in 2017 and 2018, earning $11,200 in the first year and $43,179 the following year. When the condo was sold in 2018, the CRA assessed $77,079.64 in HST on the sale due to the change in use from residential to commercial.
Implications for Ontario Real Estate Investors
This decision could lead to widespread HST assessments on properties used for short-term rentals at the time of sale, impacting investment property owners across Ontario. According to the ruling, if the property had been converted back to long-term residential use prior to the sale, the HST likely wouldn’t apply. Now, similar cases could trigger HST charges when selling properties actively listed on short-term rental platforms.
As Ontario continues to tackle housing shortages, and provinces like British Columbia impose stricter regulations on short-term rentals, this ruling signals a potential shift in how short-term rentals are viewed by the CRA and Canadian courts.
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