Is the sale of a property used for short-term rentals, such as those listed on Airbnb, subject to GST/HST in Canada?

Yes, the sale of a property primarily used for short-term rentals (leases under 60 days) is subject to GST/HST. The Tax Court of Canada ruled that such properties are considered commercial rather than residential, making their sale a taxable supply.

How does the property's use affect its tax status upon sale?

The property's use at the time of sale determines its tax status. If it's used mainly for short-term rentals, it's classified similarly to hotels or motels, leading to GST/HST applicability on the sale.

Are long-term rental properties subject to GST/HST upon sale?

Generally, properties used for long-term rentals (leases over 60 days) are considered residential complexes and are exempt from GST/HST upon sale. However, a shift to short-term rentals can change this status.

What are the financial implications of selling a property used for short-term rentals?

Selling such a property can incur significant GST/HST liabilities. For instance, a sale price of $1 million could result in a $130,000 tax obligation.

How can property owners mitigate unexpected GST/HST liabilities when selling?

Owners should maintain detailed records of rental activities and consult tax professionals before selling to understand potential tax obligations and explore strategies to minimize liabilities.

What was the outcome of the 1351231 Ontario Inc. v. The King case regarding GST/HST?

The court determined that the sale of a condo used for short-term rentals was subject to GST/HST, as it didn't qualify as a residential complex at the time of sale.

Canada: GST/HST Applicable to the Sale of an Airbnb Rented Property

The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) are typically not applicable to selling previously occupied property in Canada. However, in a recent ruling, the Tax Court Of Canada (Tax Court) concluded that selling condominium units previously rented out at Airbnb is subject to GST/HST.

In its ruling,

the Tax Court considered a rather specific circumstance surrounding the sale of these condominium units.

Facts of the Case and Courts Reasoning

Since 2008, when Ontario Inc. bought the condominium units in Ottawa, they have rented them out for nine years through a long-term lease, meaning that they were rented for a period longer than 60 days. This changed in 2017 when Ontario Inc. listed these units on Airbnb, and in the next 14 months, they rented them out for a short-term rental of up to 60 days. Ontario Inc. sold these units in 2018, and neither the seller nor the buyer remitted GST/HST.

The Minister of National Revenue concluded that Ontario Inc. had to pay GST/HST of CAD 77,079.64, which was collectible on selling condominium units. Ontario Inc. appealed against this decision and raised a question before the Tax Court of whether the sale of condominium units was subject to GST/HST.

The Tax Court decided that since the condominium units were not a residential complex at the time of sale, the transaction was a taxable supply of real property, which means it is subject to GST/HST. Ontario Inc.'s appeal was dismissed, and they are obliged to pay the GST/HST plus additional costs.

Conclusion

This case highlights the importance of understanding the consequences of changing how a property is used when applying GST/HST. The Tax Court's ruling clarifies that properties used for short-term rentals, like those listed on Airbnb, may not qualify as residential property and, therefore, may be subject to GST/HST.

To avoid these situations, property owners should invest additional time before selling their properties to determine how the property's usage is treated and what taxes are applicable.Source: Case - 1351231 Ontario Inc. v. The King, 2024 TCC 37, Canadian Tax Foundation