Remember that old Ben Franklin saying that there’s nothing certain except death and taxes?
Well, for Airbnb owners, the taxes part may be getting a little more certain — and difficult.
Most hosts already know there’s a requirement for Airbnb to collect and remit GST or HST on rentals of less than 30 days.
Dreamstime / TNS
Airbnb iPhone app.
It’s something that landlords of long-term rentals aren’t required to do.
But there’s another difference for short-term landlords that may change the landscape even further.
A court decision in March highlights the way the Canada Revenue Agency views properties used as Airbnbs, and owners may want to pay attention.
For years, there have been concerns that Airbnb and other short-term rental companies are taking properties out of the rental market, making it harder and harder for Canadians to find places to live.
Some cities and other jurisdictions — even condominium boards — have made rules and laws to control the spread of the rentals, and others have adopted new taxes and fees.
But in March, a federal Tax Court judge ruled on a CRA interpretation that says, when a short-term rental property owned as an investment is sold or changed to another use (even becoming a principal residence), the transfer has to include payment of the federal HST or GST on the full value of the property.
The case in question is 1351231 Ontario Inc. and His Majesty the King.
The judge in the case summed the issues involved succinctly: “This appeal relates to the sale of a used condominium unit that the appellant acquired as an investment property. For the first nine years that it owned the condominium unit, the appellant rented it to third parties under long-term leases. However, for most of the last 14 months that it owned the condominium unit, the appellant leased the property under a number of short-term leases through the Airbnb platform. The question before the court is whether, in such a situation, the sale of the condominium unit was subject to GST/HST.”
Bought for $600,000 in 2008, the condo became an Airbnb in 2017. During 2017 and 2018, it collected gross revenues of $54,379 — $11,200 in 2017 and $43,179 in 2018.
But when it was sold in 2018, neither the purchaser nor the seller remitted HST on the property to the federal government.
The federal government then ordered the sellers to pay $77,079.64 in HST on the sale, more than the company had ever made during the period it was an Airbnb.
What happened next was a complex court case over the finer points of Canadian tax law. The company that had owned the condo, a partnership between two brothers, argued that the HST rules shouldn’t apply to them, because, for most of the time they owned the condo, it wasn’t an Airbnb; the federal government argued that what mattered is what the condo was being used for when it was sold. (And even halting a business can be deemed to be a sale.)
The government won.
If you’re an Airbnb operator, should you be worried? We’re no experts, but there certainly are tax law experts and other resources you might want to look into.
There’s no doubt that there’s a public policy benefit in limiting short-term rentals and, in the process, increasing the availability of longer-term rentals for Canadians in a tight rental market.
The problem is that creating those limitations can also have a drastic effect on individuals who have seen Airbnb property investments as quick and easy income in the past, and have later gotten caught in the middle of government actions to curtail what it views as a growing problem.
Nothing certain but death and taxes, indeed.