As if AirBnB owners don’t have enough bad news, there is a new tax to pay! It turns out there is a little-known tax rule that can lead to a significant one-time GST and provincial tax hit when converting a short-term rental unit into a long-term rental! For a property valued at $1,000,000, this can mean a tax bill of $120,000.
And if you think you can sidestep this by selling the unit, think again. Unfortunately, this tax applies in that case too. Here’s why: the Canada Revenue Agency (CRA) treats long-term rentals as “residential use” and short-term rentals as “commercial use.” This means that anytime a property shifts from commercial to residential use, this tax may be triggered. So, for owners in areas where Airbnb rentals are now restricted or banned, the tax applies whether you decide to convert the unit into a long-term rental, sell it, or even move in yourself.
That said, there is a potential exception to this rule. If less than 90% of your rental activity qualifies as short-term, the property might still be considered residential, exempting it from the tax on conversion. This guideline is not well-defined, so consulting a lawyer to understand your specific situation is essential.
If you are interested in the case that brought this rule to light, click on the link: https://www.pallettvalo.com/articles/tax-court-of-canada-holds-that-the-sale-of-an-airbnb-rental-property-is-subject-to-gst-hst/.
