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Canadian homeowners who frequently rent properties on Airbnb & other sites must pay a 13% tax when selling it

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When you sell your house, you should anticipate paying a significant tax if you frequently rent it on websites like Airbnb or other short-term rental services.

According to a recent ruling by the Tax Court of Canada, homeowners in Ontario who regularly rent out their homes for short periods must pay 13% HST when they list them for sale.

Any home regularly rented out for a short period of time on websites like Airbnb and VRBO is subject to the tax. This covers single-family homes, townhomes, and condos. Short-term rentals that include utilities and have a business model similar to a hotel are also subject to tax implications. 

Homeowners should be aware that there is a 90% threshold for renting out the property, which determines whether or not they will be subject to HST upon sale, Barrett Tax Law President and Founder Dale Barrett told the Toronto Star. But there is still no precise definition for that 90%. The Canada Revenue Agency would evaluate any property tax disputes.

Residential properties have always been exempt from the 13% HST, but commercial property sales have always been subject to it. This recent ruling establishes a precedent and raises concerns about potential future taxes on comparable properties regularly rented out for short periods.

What This Refers to Short-Term Rental Owners

Your property may be categorized as commercial rather than residential if you frequently rent it out on websites like Airbnb or VRBO (90 percent threshold), which could affect your tax obligations if you ever decide to sell. This ruling implies that properties used primarily for short-term rentals may no longer be considered “residential” and may be subject to HST on the sale price, even though it does not establish a new tax.

For those who intend to sell expensive properties, this choice may have more significant financial consequences. Owners of short-term rentals should therefore think about including this possible tax in their long-term planning.

Ways for property owners to protect themselves

Property owners should maintain a thorough record of all rental periods, including the financial trail to understand and monitor their short-term versus long-term rental ratio, as well as to plan for the future and make sure they include the possible tax amount when selling their property.

The ruling was made in a case involving an Ottawa condo owner who listed his house for rent on Airbnb and then sold it. The condo was rented by the homeowner for longer periods than 60 days between 2008 and 2017. The condo was rented out through a series of short-term leases from 2017 to 2018, however, after the homeowner chose to list it on Airbnb.

The short-term leases brought in $11,200 for him in 2017 and $43,179 for him in 2018. Without paying HST, he sold the house in April 2018 while it was still listed as an Airbnb short-term rental.

The condo was subject to 13% HST ($77,079.64), which is collectable upon sale, according to the Minister of National Revenue’s assessment after the sale was completed because it had been converted from residential to commercial use.

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