If you’re a Canadian homeowner using Airbnb, Vrbo, or other short-term rental platforms, you could be facing a massive tax bill when it comes time to sell your property. A ruling from the Tax Court of Canada confirms that homeowners who frequently rent out their properties for short stays may now owe 13% HST on the entire sale price– a decision with huge implications for real estate investors, especially in Ontario.
Why This Matters: What Changed?
Ordinarily, selling a primary or residential home in Canada is HST-exempt. But the 2023 court ruling (still relevant in 2025) determined that when a property is primarily used for short-term rentals, it no longer qualifies as residential use. Instead, it’s considered a commercial activity, and therefore, the sale becomes subject to HST.
The tax applies to the full sale price, not just the rental income, which could mean tens or even hundreds of thousands of dollars in taxes owed to the CRA.
Real-Life Example: Ottawa Condo Case
This new standard was set by a case involving an Ottawa condo owner, who rented the unit as a long-term rental for 10 years. In 2017 and 2018, they switched to short-term Airbnb rentals and earned:
- $11,200 in year one
- $43,179 in year two
When the condo was sold in 2018, the Canada Revenue Agency (CRA) assessed $77,079.64 in HST on the sale, triggered solely by the shift in rental use.
What This Means for Ontario Airbnb Hosts
Ontario homeowners and investors in cities like Toronto, Niagara Falls, and Muskoka, where short-term rentals are popular, are especially vulnerable.
If you’ve:
- Regularly listed your property on Airbnb or Vrbo
- Marketed it as a short-term rental
- Earned income primarily through nightly or weekly bookings
…then the CRA could treat your home as commercial property when you sell.
And yes—the 13% HST applies to the full market value, not just the gains.
Can You Avoid the HST?
Yes, but only if you switch your property back to long-term residential use before listing it for sale. According to Ontario law firm Pallett Valo LLP, owners who rent to long-term tenants or personally occupy the property may retain HST-exempt status.
Impact on Investors Across Canada
This ruling could reshape the short-term rental landscape nationwide:
- In Ontario, many cities have tightened short-term rental bylaws since 2023
- British Columbia introduced a provincial crackdown on short-term rentals in 2024
- Nova Scotia and Quebec have begun enforcing stricter licensing and reporting standards
Investors who planned to cash out of profitable STR properties now face a tax risk that could significantly reduce profits—or even wipe them out.
Expert Insight
“This ruling shows that short-term rentals are not just a side hustle anymore—they’re seen as a commercial business by the CRA,” said tax law experts at Pallett Valo LLP.
“Property owners must be proactive in understanding the tax consequences.”
What You Should Do Now (2025 Tips):
✅ If you currently own an Airbnb: Consult a tax professional immediately
✅ Planning to sell soon? Switch to long-term rental or move back in
✅ Considering STR investing? Include HST risk in your ROI projections
📚 References:
- Pallett Valo LLP: Tax Consequences of Short-Term Rentals
- Tax Court of Canada Ruling Summary – Airbnb HST Case (Ottawa Condo)
- Hefty tax now applies to certain Canadian Airbnb hosts – BlogTO
- Ontario Housing Market Trends – 2025 Update
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