Tax Court of Canada holds the sale of an Airbnb rental property is subject to GST/HST
Ray Mikkola and Saghi Khalili
by Ray Mikkola and Saghi Khalili
While the sale of a used residential property is generally exempt from Harmonized Sales Tax (HST) in Canada, the Tax Court of Canada in 1351231 Ontario Inc. v. The King, 2024 TCC 37, recently held that a condominium unit rented on Airbnb for a series of short-term leases was subject to tax.
The appellant had purchased the property in 2008, and for the first nine years of ownership, leased it to third-party individuals for periods exceeding 60 days. However, in 2017, the appellant listed the property for rent on Airbnb, and for most of the last 14 months the appellant owned the property, rented it to third-party individuals for short-term periods. Upon selling the property to an arm’s-length purchaser, neither party remitted HST.
The question before the Court was whether the sale of the property was subject to HST under the Excise Tax Act (the Act), which is imposed on the recipient of a “taxable supply” that is “made in Canada”.[1] A “supply” is defined as “the provision of property or a service in any manner, including sale”,[2] and a “taxable supply” is a “supply made in the course of a commercial activity”.[3] The Court affirmed that the sale of the property fell within the Act’s definition of supply, and that since it involved real property, it was deemed part of a commercial activity and therefore taxable, unless it fell within an exemption under the Act. One such exemption would be if the property qualified as a “residential complex”.
The Court held that the property did not meet the definition of residential complex, as at the time of sale, it was being operated similarly to a hotel, motel, inn, boarding house or lodging house, with all or substantially all the leases for the property being for periods of possession of less than 60 days. Further, the appellant was offering the property on a furnished basis, and was covering the costs of utilities, heat, and electricity.
The case also discussed the change-in-use rules contained in subsection 206(2) of the Act. The Court noted that while the appellant, an HST registrant, had acquired the property in 2008 for use as a capital property in long-term residential leases exceeding 60 days (which are considered exempt supplies under the Act), when it listed the property in 2017 for short-term leases, a change in use occurred, and the appellant was deemed to have received a supply of the property by way of sale.
This decision highlights the need for property owners to carefully consider the tax consequences of changing property usage, and underscores the importance of a purchaser obtaining from a seller a certificate under section 194 of the Act whereby the seller confirms that the sale is exempt from tax under the Act.
Read the full version of the article here.
[1] 1351231 Ontario Inc. v. The King, 2024 TCC 37 at para 13.
[2] Ibid at para 15.
[3] Ibid at para 16.
Saghi Khalili focuses on commercial real estate matters, including the acquisition, disposition, financing, and leasing of all types of real property. Contact Saghi.
Ray Mikkola has over 30 years of experience in all matters relating to commercial real estate. He regularly acts for clients in respect of acquiring, disposing of, owning, and developing real estate, and is particularly adept at applying complex legal tools to resolve unique real estate problems.Contact Ray.
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