Implications of Recent Tax Ruling for Short-Term Rental Owners

A recent court ruling reported in the Toronto Star has significant implications for short-term rental operators in Canada, clarifying that the Canada Revenue Agency (CRA) can impose taxes on properties consistently rented out through platforms like Airbnb and VRBO. Real estate lawyer John Zinati warns that homeowners could face hefty taxes upon selling their properties—potentially tens of thousands of dollars.

The case involved an Ottawa condo owner who switched from long-term to short-term rentals and later sold his unit without paying HST. However, the CRA determined that the property had transitioned to commercial use, making it taxable upon sale. The court upheld this assessment, emphasizing that properties leased consistently for short-term periods resemble commercial operations, akin to hotels.

Zinati notes that sporadic weekend rentals won’t trigger this tax, but consistent short-term leasing—like the 14 months in this case—will. This ruling serves as an important reminder for homeowners to understand the tax implications of their rental practices, particularly as the CRA increasingly focuses on real estate taxation.

Experts like Dale Barrett advise property owners to be aware of a 90% rental threshold, which could dictate tax obligations upon sale. This threshold remains somewhat undefined, but Barrett emphasizes the need for homeowners to consult legal experts before engaging in short-term rentals or selling their properties.