If you’ve been renting out your home or another property on Airbnb in Toronto or anywhere else in Canada, there’s an essential update from the national tax court:
You may be required to pay HST when selling your rental property.
The move was made to give homeowners an easier path to building additional housing. This supply could potentially fill a need for those looking for a home or provide housing for a relative to live nearby. The loan amount was initially set at $40,000.
HST Charges on Property Sales
When selling your rental property, a 13% Ontario HST charge could be applied to the total sale price at closing. This means homeowners who regularly rent out their properties could face substantial tax bills, ranging from tens to hundreds of thousands of dollars.
For instance, if you sell a Toronto rental property for $1.2 million, you could be liable for $156,000 in Ontario HST.
The Court’s Decision
An Ottawa condo owner sold their unit in April 2018 after listing it consistently on Airbnb for over 14 months.
Following the sale, the Minister of National Revenue determined that the property’s classification had changed from residential to commercial. This was due to its consistent short-term rental use, which did not align with long-term residential leasing.
Because the property functioned similarly to a hotel, it was no longer considered part of a residential complex meant for long-term occupancy.
However, if the owner had lived in the property before selling it, its classification would have changed to residential, exempting it from HST.
Important Tax Details
This ruling applies to all property types. You could be liable for HST if you’re selling a condo, townhome, or single-family home that you consistently rent out on Airbnb or VRBO.
The key term here is consistently.
What Does “Consistently” Mean?
If you occasionally rent out your property for a weekend or two, you won’t owe HST. The threshold is set at 90%. If you rent the property for 329 days out of 365 and use it personally for 36 days, you won’t face HST when selling.
Stay Informed and Seek Professional Advice
It’s essential to understand the HST rules related to property sales. Although this regulation isn’t new, the Canada Revenue Agency (CRA) is now actively enforcing it to capture all applicable taxes from real estate transactions. In addition to this consideration, it’s important to research how the local community, and local government feel about short term rentals and if any potential changes in regulation are on the horizon. This may mean limitations on days you can rent out your property, licencing fees and regulations and additional taxes.
Before buying or selling a property primarily used as a rental, consult a property law and accounting expert to understand your tax obligations fully.
Are you ready to move to the next stage? Let’s chat. Send me an email (hillary@hillarylane.ca) or text/phone (416-882-4707).
Photo by Alexander Lindell on Unsplash
