Canadian Court: 13% HST Now Applies to Airbnb Property Sales
Relying on professional management is essential to ensure compliance and avoid unexpected costs.
01/11/2024 - A decision by the Tax Court of Canada, widely reported in the media, issued an important alert for Airbnb property owners. According to the ruling, properties used for short-term rentals must be classified as commercial assets at the time of sale, subject to the full 13% Harmonized Sales Tax (HST) on the sale price. While this does not change the law, it clarifies that the Canada Revenue Agency (CRA) considers temporary rental units as commercial operations for tax purposes.
The decision arose from the case of 1351231 Ontario Inc., a company that initially rented out a residential unit long-term but operated it as an Airbnb for the 14 months prior to its sale. This short-term period led the court to categorize the property as a commercial asset, applying the full 13% HST on the total sale price. This precedent signals that the CRA is closely monitoring the sale of properties used as Airbnbs and may impose HST retroactively if necessary.
Practical Example
Consider a property valued at $500,000. If used solely as a residence, no HST would apply. However, for a short-term rental property, the 13% tax would amount to $65,000, significantly reducing the owner's final profit. This example highlights how a change in the declared use of the property can affect the sale price.
Professional Management
With the CRA’s strict interpretation of short-term property use, relying on professional management is essential to ensure compliance and avoid unexpected costs. Professional property managers help secure regulatory adherence, both in rental operations and in sales, offering financial security and clarity for owners. In a climate of complex regulations and increased CRA scrutiny, specialized support is more necessary than ever to protect investments.
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