Ontario homeowners face 13% tax on Airbnb sales ruling
- Short-term rentals through platforms like Airbnb may trigger a 13% tax for property owners upon sale, as determined by a recent court ruling.
- A condo owner, after shifting from long-term to short-term rentals, faced a tax bill of over $77,000 from the CRA due to the property's classification as commercial.
- The ruling underscores the need for property owners to carefully consider their rental practices to avoid significant tax liabilities.
In Ontario, Canada, a recent ruling by the Tax Court addressed the tax implications for property owners who use residential properties for short-term rentals through platforms like Airbnb. The case involved a condo owner in Ottawa who, after previously renting his unit under long-term agreements, transitioned to short-term rentals for 14 months before selling the property. The Canadian Revenue Agency (CRA) assessed this sale and determined that the nature of the property had changed from residential to commercial use, leading to a tax bill of over $77,000 for the seller. Judge Steven K. D'Arcy emphasized that sales of properties used predominantly for short-term rentals do not qualify for the residential complex exemption under the GST Act. This ruling signifies a shift in how such properties are classified for taxation purposes. Property owners must now navigate new tax obligations if their rental practices exceed the 90 percent short-term rental use threshold, suggesting a greater focus on the residential to commercial property distinction. This has wider implications for homeowners across Ontario, as the 13 percent harmonized sales tax (HST) will apply during sales transactions where properties are deemed to operate in a commercial capacity. As a result, property owners need to reassess their rental strategies in order to comply with the latest tax regulations, to avoid unexpected tax liabilities upon selling their property.