Updated: October 24, 2024, at 1:02 p.m.
The Canada Revenue Agency (CRA) is closely monitoring the sale of Airbnb properties, signaling that taxpayers who sell or have sold such units should be cautious. While recent rulings do not change the existing law, they underscore the CRA’s intent to enforce a 13% sales tax on these transactions, as highlighted by real estate lawyer Bob Aaron.
Earlier this year, the Tax Court of Canada ruled that the sale of a residential property used for Airbnb rentals is subject to Harmonized Sales Tax (HST) on the full sale price. This decision emerged from a case involving 1351231 Ontario Inc., owned by brothers David and Dean Ross, who purchased a condominium in Ottawa in February 2008. Initially rented under long-term leases, the unit transitioned to short-term Airbnb rentals in the final 14 months of ownership, generating substantial rental income.
Upon selling the property for $670,000 to MLJFS Holding Inc., neither party paid HST, treating the transaction as exempt residential property. However, the CRA later assessed the former owner $77,079.64 for the HST owed, claiming the property was not a tax-exempt residential complex but akin to a commercial lodging facility due to its short-term rental activity.
Justice Steven K. D’Arcy, who presided over the appeal in September 2023, ruled that the property did not qualify for HST exemption. Consequently, the entire sale price is now subject to tax.
This ruling serves as a critical reminder for Airbnb operators: seek professional tax advice, particularly when transitioning from long-term to short-term rentals. Tax experts, including Mark Feigenbaum from KPMG, warn that the decision may shock many property owners and potentially disrupt the short-term rental market.
As the CRA intensifies scrutiny on Airbnb transactions, taxpayers involved in such sales should remain vigilant. The implications of this ruling are clear—selling an Airbnb property may come with significant tax obligations.
Airbnb was contacted for comment but did not respond in time for publication.
Source: Toronto Star Opinion Section,
