When a homeowner sells their residential property to another buyer, that transaction is exempt from the HST, or Harmonized Sales Tax. That’s good for the selling homeowner, because the HST would represent a 13% hit on the total value of the property. So for every $100,000 in value, there would be a tax ringing-up as $13,000. In the business of buying and selling properties, that’s called an “ouch.”
Commercial properties have always had the HST levied on them upon sale, so nothing new there.
But what about “residential” properties that are rented out consistently for short periods of time, so-called short term rentals? In other words, what about properties who have owners that advertise their availability to be rented for a weekend, or a couple of weeks? Properties where the owner takes care of utility costs and the “residence” in question comes fully furnished and provisioned with all the things one would need to call a place home, if even for a few days.
Places that have become, for all intents and purposes, hotel rooms. Places that may no longer be available as the type of rental units that would be a big help in alleviating the shortage of “housing” in the province, and in Canada generally.
Places familiar to us as those listed on platforms like AirBnB or VRBO, or even privately.
In a recent ruling from the Tax Court of Canada, residential units that are rented out for short-term rentals are now considered to be “commercial” properties rather than residential, meaning that they’re now subject to the 13% tax. Interestingly, renting the same unit out for longer periods of time, like several months, or even years, would allow the property owner to be exempt from the tax, the idea being that people living in a place for an extended period of time have established a permanence of residency (my words) where they can legitimately call the place they occupy as “home.”
This whole thing came to light when a fellow in Ottawa sold his condo and paid no HST as is the norm for residential properties. He had rented it out long-term with leases covering periods in excess of sixty days. But that wasn’t the problem. He decided in 2017 to start renting it out shorter term via AirBnb, establishing a series of short-term rentals for a period of fourteen months prior to listing the condo for sale.
It was this second situation, the short-term rentals, that sealed his tax fate. The court ruled that he had “commercialized” (again, my words) the property by offering amenities consistent with the operation of a hotel, a commercial property subject to HST.
As it goes for condos, so too does it go for detached, semi-detached, or townhouses as well.
Before everyone who has ever rented out their home or property over the course of a weekend begins the slow, steady burn that leads to indigestion, please be relieved to know that if you do this, periodically, you have nothing to fear from the taxman. The key word is periodically, as in from time to time, as in not consistently.
So, in a nutshell, properties rented consistently for longer periods of time are still considered residential for HST purposes. And properties rented out short-term on a consistent basis are considered commercial.
Which I suppose is not-so-great news for folks who seized upon the opportunity to buy properties, rent them out with short-term regularity, and cash in on some low-hanging money made available by the need of people to find and secure lodgings, often at the expense of other people just needing a place to live and call home.
Short-term rentals are more lucrative than long-term rentals. Sure, with a long-term rental, the owner has a consistent and reliable revenue stream coming in from their property. And for the person renting the place, they have a locked-in rate that gives them certainty when it comes to residency costs. But short-term is where the cash is.
If you’ve been following the news, you’ll be aware of Taylor Swift’s series of concerts coming to Toronto as part of her Eras Tour. For a few days in the near future, Toronto will be absolutely drowning in Swiftomania (my term, I think) with the superstar’s fans flocking to Ontario’s capital from all over Canada, and all over the world, to be absolutely honest. AirBnB and VRBO-inclined property owners are seizing upon this situation as a way to charge exorbitant rents to concert-goers arriving in town to witness the magic. And just like tickets to a Swift concert going through the roof, you can expect the same thing on AirBnB, particularly if the property happens to be located right downtown, within walking distance of the venue. People familiar with traffic in Toronto will understand that even some local Torontonians will be in the rush to snap up these rentals, some coming in at several thousand dollars per night to take advantage of the religious devotion fans of Taylor have for Taylor.
And listen, if you’ve got the wherewithal to spend thousands of dollars just to get to Toronto from Europe, Asia, or a Persian Gulf oil state, you’re likely not going to have much of a problem with the several thousands more you’re going to need to rent out some solid digs with window views of Rogers Centre.
That fellow in Ottawa? I don’t know what a downtown condo in Ottawa would go for on the market (and, in fairness, I don’t know if that condo was downtown or not), but I’ll bet it would be for a lot. A quick look at a couple of Ottawa real estate pages show many condos in the range of $479,900, but those aren’t located right downtown, where I’m sure there are some properties that scrape the $1 million threshold. At that price, a condo owner who has established a practice of regular and consistent short-term rentals would be on the hook for $62,387 in HST.
It helps one appreciate the significance of this tax ruling.
NEWSMAGRENFREW 