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A recent tax ruling will mean owners of such condos will need to pay HST when they sell. * Lance McMillan Toronto Star * Facebook * Twitter * WhatsApp * LinkedIn * SMS * Email * Print * Copy article link Save [Save] 1. Home 2. Real Estate For Subscribers Real Estate Homeowners who regularly rent on Airbnb and other sites must pay 13% tax on property value when they sell, recent tax ruling finds The ruling from the Tax Court of Canada will likely have big implications for short-term rental operators. Updated 56 mins ago Oct. 24, 2024 Oct. 24, 2024 3 min read Save [Save] * Copy article link * Email * Share on X * Share on LinkedIn * Share on Reddit * Share on Whatsapp airbnb A pedestrian with luggage makes their way next to a downtown high-rise condo that has units registered as short-term rentals. A recent tax ruling will mean owners of such condos will need to pay HST when they sell. Lance McMillan Toronto Star --------------------------------------------------------------------- Clarrie-Feinstein By Clarrie FeinsteinBusiness Reporter A recent ruling by the Tax Court of Canada indicates homeowners who have regularly rented out their property on Airbnb or other short-term rental sites will be subject to paying 13 per cent HST when putting the home up for sale. The 13 per cent tax will be applied to the total price paid for the property when sold, so could amount to tens -- or even hundreds -- of thousands of dollars. While the sale of a previously occupied residential property is generally exempt from HST, the Tax Court of Canada ruled in March that the sale of a condo unit rented out on Airbnb for a number of short-term leases was subject to the tax. ARTICLE CONTINUES BELOW It's a ruling that will likely have big implications for short-term rental operators as it clarified that the CRA can charge the tax in cases similar to the ruling. "People must be absolutely careful if they want to use short-term rental platforms for their property consistently," said real estate lawyer John Zinati, owner of Zinati Kay law firm in Toronto. "They'll be taxed a big amount. If they sell their unit for $1 million, they have to pay $130,000 in tax." The tax rules apply to any property type, which includes condos, townhomes and single-family homes that have been rented out for short-term rentals on platforms such as Airbnb and VRBO, over a consistent amount of time, said Zinati. Toronto is looking to crack down on 'lucrative' Airbnb industry to find more rulebreakers Gta Toronto is looking to crack down on 'lucrative' Airbnb industry to find more rulebreakers City staff recommended measures such as property inspections, improving data-sharing practices, and strengthening enforcement of the rule Toronto is looking to crack down on 'lucrative' Airbnb industry to find more rulebreakers Gta Toronto is looking to crack down on 'lucrative' Airbnb industry to find more rulebreakers City staff recommended measures such as property inspections, improving data-sharing practices, and strengthening enforcement of the rule The decision was made in a case where a condo owner in Ottawa sold his home after renting it on Airbnb. The owner originally rented out the unit on long-term leases of more than 60 days for nine years. However in 2017, the homeowner decided to list his property on Airbnb and leased it for periods of continuous short-term rentals for 14 months prior to the sale. ARTICLE CONTINUES BELOW ARTICLE CONTINUES BELOW When he sold the property in April 2018, he didn't pay HST. Sometime after closing, the minister of national revenue assessed that the unit changed from residential to commercial use, which meant that HST was collectible upon sale. That means consistent long-term leasing is still considered residential use, but short-term rentals are considered commercial use. The decision was appealed, but in March of this year the court determined the property when sold wasn't a "residential complex" as it was operated similarly to a hotel -- it was being leased on a short-term basis fully furnished with the homeowner covering the cost of utilities. As a result, the entire sale price of the condominium was not exempt from HST. The ruling indicates that when the sale occurred the property was an Airbnb and therefore subject to the tax, suggesting that if a home is converted back into residential use, it's unlikely to have been taxed 13 per cent HST upon sale. "If you rent out your property for a weekend every now and then, you're not subject to this tax rule," Zinati said. "It has to be on a consistent basis, and in this case, the homeowner did so for 14 months, which counted." In the City of Toronto, a short-term rental is all or part of a dwelling unit rented out for less than 28 consecutive days in exchange for payment. A CRA spokesperson told the Star, that the courts provide Canadians with an "independent review of disputed issues," and court decisions "clarify the law or resolve disputes" between the CRA and taxpayers. "Publicly available information on this matter may be obtained by contacting the court registry," the spokesperson said. ARTICLE CONTINUES BELOW ARTICLE CONTINUES BELOW Further information on the GST/HST and the sale of vacation properties can be found on the CRA website. The court ruling doesn't mark any change in the law but the case may come as a surprise to the public, said Dale Barrett, president and founder of Barrett Tax Law. "This decision is educating people about the law," he said. "People are in the dark about HST and don't understand how the Excise Tax works and how it applies to properties." The ruling also picks up on a trend of the Canada Revenue Agency (CRA) pursuing taxation in real estate -- the recent capital gains tax and assignment sales tax are indicative of an attempt from the CRA to clamp down on the "leakage" in taxation when dealing with real estate transactions, Zinati added. Real estate investors, cottage owners could be hit with bigger tax bill following Ottawa's capital gains change Real Estate Real estate investors, cottage owners could be hit with bigger tax bill following Ottawa's capital gains change Real estate investors who sell properties other than their primary residence and have a total gain of more than $250,000 will have to pay 33 per Real estate investors, cottage owners could be hit with bigger tax bill following Ottawa's capital gains change Real Estate Real estate investors, cottage owners could be hit with bigger tax bill following Ottawa's capital gains change Real estate investors who sell properties other than their primary residence and have a total gain of more than $250,000 will have to pay 33 per Going forward, it's important for homeowners to know there's a 90 per cent threshold of renting out the property, which determines if they'll be subject to HST upon sale, Barret said. While that 90 per cent threshold doesn't have a clear definition, it could mean that if the property is rented out for short-term use 89 times but rented out 11 times for long-term use then the property wouldn't be subject to the tax, Barrett said. ARTICLE CONTINUES BELOW ARTICLE CONTINUES BELOW "How to calculate that 90 per cent still isn't clear, but that could be determined in another case," he added. "Be careful if you decide to pursue short-term rental," said Barrett. "And if you decide to sell the home speak with an expert who knows the law well." Clarrie Feinstein Clarrie Feinstein is a Toronto-based business reporter for the Star. Reach Clarrie via email: clarriefeinstein@torstar.ca. Related Stories Toronto made a bylaw to crack down on Airbnb and other short-term renters. Now, companies are instructing investor owners how to evade the rules Toronto is looking to crack down on 'lucrative' Airbnb industry to find more rulebreakers Real estate investors, cottage owners could be hit with bigger tax bill following Ottawa's capital gains change Report an error Journalistic Standards About The Star JOIN THE CONVERSATION To join the conversation set a first and last name in your user profile. Update Profile Conversations are opinions of our readers and are subject to the Community Guidelines. Toronto Star does not endorse these opinions. Sign in or register for free to join the Conversation Sign In Register More from The Star & partners Close Save asset to your list Please log in to use this feature Log In or Sign Up More Real Estate Taxpayers who sell or who have sold Airbnb units are now on notice: The CRA is watching Business Opinion Bob Aaron: Taxpayers who sell or who have sold Airbnb units are now on notice: The CRA is watching * Article was updated 5 hrs ago * Comments Homeowners who regularly rent on Airbnb and other sites must pay 13% tax on property value when they sell, recent tax ruling finds Real Estate Homeowners who regularly rent on Airbnb and other sites must pay 13% tax on property value when they sell, recent tax ruling finds * Article was updated 56 mins ago * Comments Too much, too fast? Bank of Canada risks a home price runup with key rate cut, experts say Real Estate Too much, too fast? 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