As we head into vacation season, we often get questions related to GST/HST on cottage or vacation property rentals using services such as Airbnb. For example: “I purchased a cottage that is closing on June 1st. I plan to rent this out for short-term rentals on Airbnb. I am also planning to turn another cottage I own from personal use to Airbnb rentals. What are the GST/HST implications of this?”
How the cottage or vacation property will be used – short- or long-term rentals
When considering how GST/HST applies to a vacation property, you must be aware of the primary use of the property. Is this a residential property (longer-term rentals or personal use) or a commercial property (shorter-term rentals)?
- Residential property – this would be longer-term continuous use of the property. It can be occupied as a principal residence or a vacation property but without pause in the tenancy. Generally these leases are exempt of GST/HST and the purchase or sale of the property would be exempt of GST/HST.
- Commercial property – this would include shorter-term rentals, less than 30 days in length. For example, a cottage property where you are renting it out under-30 day stays, through services such as Airbnb.
Changing a cottage or vacation property from residential to commercial: GST/HST
Where a property changes from a residential property to a commercial property, such as your purchase of the cottage to turn it into an Airbnb rental, there are no GST/HST implications other than allowing for GST/HST paid on the purchase of the property to be recovered. Given you did not pay GST/HST, this is not an issue.
Changing a cottage or vacation property from commercial to residential or selling: GST/HST
Where the problem arises is in the future, when you either change the use of the property from commercial to residential or sell the property. Where you change the use of the property there is a deemed sale of the property at current fair market value and GST/HST is payable. A rebate may be available to offset some of the GST/HST.
Below is a mathematical representation for a property purchased in Ontario:
| Current FMV | $485,000
Rent it for short-term rentals for one year. |
| FMV one year from now | $550,000
You start to rent it as a long-term rental |
| HST Owing | $71,500 ($550,000 * 13%) |
In Ontario, a rebate may be available if the property is going to be occupied as a principal residence.
In this example a purchaser in Ontario would have made $65,000 on the appreciation of the property, but owed $71,500 in GST/HST. On GST/HST alone, the property would be sold at a loss of $6,500. (This does not take into account other taxes, transaction fees, and so on.)
For vacation properties situated in provinces west of Ontario the tax owing would not be as significant.
Get advice on your cottage or vacation property rental
For vacation properties, whether purchasing, changing their use, or selling, please ensure that you seek out the proper advice from a GST/HST expert. The GST/HST costs can be incredibly significant if not handled properly. If you have further questions on the GST/HST implications for your cottage or vacation property, please contact Scott Merry at smerry@bdo.ca.
Scott Merry, CPA, CGA
Partner, Indirect Tax
smerry@bdo.ca
Tags: commercial, cottage, residential, vacation property
If I purchased a small condo in Muskoka for $128000, and spend 100000 on renos, and do Airbnb for 3 months, would I have to pay HST on it when I sold it? I would like to sell it for $250000
If your intention is to purchase the condo, complete some renovations, rent it out and sell it, all in succession, the sale of the property will likely be subject to HST. All of those activities provide evidence you were in the business of buying and selling real estate. In order to not have HST apply you would need to show the condo was not purchased for a business purpose. For example, if you lived in the condo for a period of time before selling it you may have an argument that it was a personal property. Documenting intent and having evidence of executing on that intent to support the HST position taken is important.
Scott Merry
If someone purchases a residential property, and then decides either right away, or after living there for a few months to move out, and rent the property out as short term (ie air BNB, VRBO) what are the tax implications when they go to sell the property? Would the entire value of the property be subject to HST on selling if the new buyer intends to use it just as a residential property?
Another situation I am curious about, is if someone has 2 units in the same property, and rents one out to long term tenants (1 year lease) but rents out the other unit on a short term basis. Upon resale, is the HST on the property assessed differently?
Q1 – where a property has a change-in-use and is rented out for short term rentals similar to a hotel, motel or similar type venue, the property is considered to be used in a commercial activity and the next sale would be subject to GST/HST. A change-in-use is not always bad news, there is also a potential opportunity to recover GST/HST that has been paid on the original purchase or to any capital additions to the property.
Q2 – Where the property has a dual use one must look to the primary use of the property: is it primarily a residence or a short term rental property similar to a hotel, motel, etc.? Once that is determined one should be able to determine the HST status.
Regards,
Scott
Q1 If you cancel your HST account as you do not earn $30000.oo per year, why do you have to have to pay taxes for the change as per deemed sale of the cottage? Why couldn’t you just pay the ITC’s back to revenue Canada?
Hi Darlene,
I am assuming this question relates to when a property was used in a commercial activity and the use is changed to personal. Based on that assumption, there is a provision that deems the change from commercial to a residential complex to be a substantial renovation and as such GST/HST becomes payable on the fair market value.
Another scenario may be that you are cancelling your GST/HST registration on the basis you do not earn greater than $30,000 of taxable sales annually but the property will continue to be used as a rental, in this instance any GST/HST claimed as an ITC would have to be repaid. In this example the property continues to be used in a commercial activity and so the GST/HST must be repaid.
Scott Merry
Hi Scott,
I intend to purchase a condo unit type property in a skiing village.
The vendor wants to sell me this unit as residential unit, saying that the unit is not subjected to GST/HST/QST taxes as he purchased it the same way from the previous owner. (obviously for better selling price)
I know for sure that he used this unit as a short term rental advertised on Airbnb(combination of short term and seasonal). Also he never claimed GST being under 30,000 and occasionally he used it for himself. Most likely he never did a “change in use” neither.
I am afraid to go ahead with this deal as residential though.
What do you think? Should this sale be taxable?
Many thanks!
Calin
Hi Calin,
The application of GST/HST related to the sale of real property is determined by the use of the property immediately before the sale, therefore it is the responsibility of the seller to make the determination as to whether GST/HST should be applied. There are many aspects necessary to make the determination and if the seller is willing to sign off the property is exempt of HST that should be sufficient evidence for you to not pay HST. Should the Canada Revenue Agency determine the sale was subject to HST at a later date the HST would be payable by the seller from the proceeds received from the purchaser.
Using a properly worded purchase and sale agreement should limit any recourse by the seller to recover the HST from the purchaser. It is advisable to seek council from a lawyer familiar with real estate law to advise you accordingly.
Regards,
Scott Merry
Partner Indirect Tax
BDO Canada LLP
I purchased a cottage about 8 years ago and rent it out part of the Summer when we do not use it. I am considering selling it and am wondering if I will have to pay HST on the sale. We claim the income every year but do not collect HST on the rental income.
Thanks!
Thanks for posting your question. There are a couple of key points to consider when answering the question:
– How often was the cottage rented out during the summer, three weeks, six weeks? Primary use (50%+) of the property is a key to determining whether HST applies, where it is primarily personal use HST should not apply.
– The second question to consider is whether any HST was recovered as an input tax credit on the initial purchase of the property or any capital additions such as an addition. If you are registered for HST and claimed HST back on any of those costs the property qualifies for exemption.
As always the answer lies in the facts and details of the situation I would suggest obtaining some advice if there are any concerns HST might apply. If you don’t have someone knowledgeable about GST/HST to ask I can be reached at smerry@bdo.ca.
Scott Merry
I am looking at purchasing a piece of commercial land to put three rental cottages on. I plan to rent out the cottages weekly from June – September (commercial) and monthly from October to May (residential). Although it will be residential 8 months out if 12, most of the yearly revenue will be made in the summer months when it is commercial. How does the HST rebate apply for purchasing the land and building the cottages. What percentage if the HST will I get back?
Hi Deanna,
In order to answer the question I need to understand the terms of the monthly rentals between May and October, are the monthly rentals to different renters? Is the rental agreement with one person over the entire term?
Regards,
Scott
Hi Scott,
In Feb. 2018, my wife and I purchased a second property – a cottage for $425,000. We put in about $50,000 in renovations. And we rent out it for about 130 days / year through AirBnb and VRBO. We didn’t reach $30k until this month for this calendar year (2019), but don’t have an HST #. We’ve decided to stop the business.
Couple of questions: #1 – Do we need to apply for an HST if we’re stopping the business, even if we reach 30K this month, but have no intention of renting it out anymore? #2 – If we sold our principle residence and moved into our cottage (making it our principle residence) and lived in it for a year, when going to sell, would the purchaser still have to pay HST? And would Capital gains tax still apply to the cottage (if sold for $550,000 which is Fair Market Value currently)?
Thanks, Michael
You mention in your post that you rent the cottage for about 130 days / year. It is unclear whether this is the actual days of rental and is available for a longer period of time but what you need to consider is what was the primary use of the property during that time period rental or personal use which will determine whether HST is payable. If during that time period it was primarily rental and you change the use to personal there may be a deemed disposition at that time where you and your wife will be required to self-assess HST (pay the tax).
In respect to the registration question you don’t mention whether the revenue is split between you and your wife or one of you reports the income. Based on a court case heard a number of years ago, where the property is held jointly by husband and wife it was determined the two parties are not associated therefore each of you have a $30k threshold for determining registration. If you split the revenue you should not have a requirement to register. On the other hand if the revenue is reported by one party there is a requirement to register.
Regards,
Scott
For the income tax portion of the question, from an income tax perspective the change in use of the property requires a deemed disposition at fair market value. It is unclear whether the primary purpose of the property was personal use or income producing. This will potentially result in a capital gain and perhaps recapture of previously claimed capital cost allowance. It may be possible to defer these gains until a future disposition occurs provided you qualify. Regarding the principal residence exemption which allows for ONE qualifying property to be designated as the principal residence which in turn provides that one year of ownership would not be taxed when sold or deemed to be sold. Ignoring the “one plus” rule, if a property was owned for 5 years and 3 years were designated for the property, 3/5 of the gain would be tax free before considering the one plus rule.
All told, more information would be needed and a discussion of the alternatives could be had from both an income tax and GST/HST perspective.
Warm regards,
George E. Dube, CPA, CA
Hi Scott
We are considering to rent our current principal residence on AirBnB on an occasional basis. When our principal residence will be booked on AirBnb, we will be staying at our cottage or with friends and family.
To determine the percentage of primary use, is it the number of days booked or the number of days the residence is available for rental?
For example, we would limit the total number of days booked to 180 days but the availability calendar would be open for 300 days since we are flexible and can easily use our cottage given the proximity.
If I use the number of days booked, then the primary use is personal use (180/365= 49% AirBnb is less than 50%).
If I use the availability calendar, the primary use is commercial (300/365= 82% AirBnb is more than 50%).
Obviously, we do not want to be subject to any GST on the value of our principal residence if we decide that AirBnB is not something we would want to continue.
If that would be the case and we are deemed to have changed the use from commercial to residential, the GST payable would be much greater than the potential income and required effort, in our view.
Thanks in advance.
Kind regards
The practice of the Canada Revenue Agency is to look at the availability of the property for rent and determine the primary use from that data. In your scenario I would predict the CRA would say the property is used primarily as AirBnB.
Regards,
Scott
Hi. My wife, myself and 2 others are purchasing a property in Ontario which was used originally as a seasonal cabin rental property under a Tourist Commercial zoning. This property hasn’t been used for more than 20 years as a cabin rental business and still has the Tourist Commercial zoning. The family has used the property as a seasonal family compound. The current owners whom reside in the United States and don’t get up here often enough are selling the property and it is currently under Land Titles in the name of the owner, and not that of a Corporation. My question is, we are buying the property as a Corporation for the purpose of Short Term Rentals. The Agreement of Purchase and Sale has HST in addition to purchase price, but the selling agent doesn’t believe that there will be HST payable because the current owner never claimed ITC’s on any improvements to the property. If we purchase this as a Ontario Corporation, will the purchase price be subject to HST? I appreciate any feedback you may give. Respectfully, Todd
The GST/HST is a value-added tax that applies to all sales of goods and services supplied within Canada. There are specific exemptions available for the sale of real property, subject to meeting the conditions for exemption. The application of HST as it relates to the sale of real property is determined by the seller. In other words the seller must look at the use of the property immediately before the sale and determine if the sale meets the conditions for the sale to be exempt of HST.
As the purchaser of a property I would recommend requesting a statement from the seller stating the application of HST on that particular sale.
Regards,
Scott
Hi,
We rent out multiple units on Airbnb (and are HST registered) but now we have the possibility of renting some of these units for more than 30 days to the same renter, would HST be chargeable on the same?
The application of HST will depend on whether the unit remains as a hotel, motel or similar type rental or whether the unit changes use to a residential unit. Your question doesn’t state whether this unit is changing to the individual’s residence, whether it is rented to a business for use by their employee’s, etc.
There are a number of considerations that must be taken into account before an answer can be provided, I highly recommend you speak with someone that has knowledge in the application of HST. Please feel free to contact us as we would be happy to help.
Regards,
Scott
Hi,
We are buying a piece of property in cottage country to eventually put our retirement home on it. We have no intention of ever renting it out or use it for rental. Do we have to pay HST? Is their a rebate once the home is built? It is a huge chunk of change to pay in tax.
Thanks
In order to determine whether HST applies on the purchase of the land one needs to consider who the seller is, individual vs. corporation, what the land was used for immediately before the sale, etc. Given the right set of facts the property could be exempt of HST. In other words the application of the HST is determined by the seller.
Once you construct your home, there is currently a federal new housing rebate available for houses with a fair market value under $450k. In Ontario there is also a provincial new housing rebate available that is based on a formula that takes into account the sales tax paid on the construction costs of the home and fair market value, it has a maximum value of $24,000. This rebate is not clawed back based on the fair market value.
Regards,
Scott
Hi,
We are building a two-storey garage on our 2 acre property with the second floor being built as a two bedroom apartment with bathroom, kitchen, dining room and living room. The lower garage portion is used 50 percent for parking and HVAC for apartment guests the other 50 percent is used by us for residential parking and storage purposes. The apartment will be rented through airbnb and for short-term tenants (less than 30 days).
We also have our existing home on the 2 acre property and has been our primary residence for the last 20 years.
Should we register for GST/HST to claim an input tax credit on a portion of the construction of the garage? We are anticipating earning approximately $25K to $35K in annual rental income on the garage apartment. What happens if we sell our property in the future, as both our principal residence and garage/apartment are part of the sale of the 2 acres of land and 2 buildings.
Thanks,
Doug
Hi Doug,
The situation you describe has some complications and intricacies. I suggest the best course of action is to get some professional advice on the application of HST related to your construction as this warrants a conversation.
Best regards,
Scott
Hello Scott,
In 2012 I purchased rental property at Blue Mountain Resort for $380,000.
The unit has been part of a rental program since the time of purchase, and was only used by the owner 10% of the year.
The HST was treated as a payable and an ITC at the same time, resulting in a wash on my HST return.
During the years in which I owned the condo, I paid the HST on any revenues collected and claimed the HST on operational expenses incurred during the ownership of the condo.
The condo was sold in June 2019 for 591,000, with the HST not included in the sale price, it was in addition to, as per our purchase and sale agreement.
The new buyers will put the condo in the same rental program as we did, and will use it for only 10% of the year, just as I did. Do I owe the HST on the sale of the unit?
Would the responsibility of HST payable fall on the new owner, as it did with me when I purchased the condo in 2012?
It is the owners intent to defer the HST on the unit (incur a payable and ITC at the same time), just as I did.
Your advice in this matter would be greatly appreciated
Kind regards,
Nadeen Rahman
Hi Nadeen,
If the purchaser intends to use the unit in the same manner as you describe below they should register for the GST/HST prior to the sale, provide you the GST/HST number they obtain from the government (each person named on the purchase and sale agreement should provide a registration number), your lawyer should verify the number is active, if that all checks out then you are not required to collect the HST from the purchaser. The purchaser is then required to report the HST as required.
If the above does not check out you are required to collect HST from the purchaser and remit it to the Canada revenue Agency.
Regards,
Scott Merry
Hi Scott, we are looking at purchasing a cottage in PEI for strictly personal use. We were looking at one in particular, the realtor told us we would have to pay HST on it as the vendor used it as a short term rental. I don’t understand why would have to pay HST when we are not going to be renting out. Can you please clarify this situation and is there a way around it? I’m afraid this will be a problem trying to find a place as most are rentals.
Thanks.
Hi Laura,
The application of the HST is based on the use immediately before a sale, so if the seller has used it exclusively in short term rentals (similar to a hotel, motel, etc.) where HST was applied to the rentals then they must collect HST on the sale of the property Given your changing the use of the property by using it for personal use and enjoyment the HST paid on the property is not recoverable by you and becomes part of the purchase price.
I trust this answers your question.
Scott Merry
Hello,
My husband and I are purchasing a home on a lake with three cottages on the property. Up until last year (Oct 19) the family lived in the main house year round for many years and rented the cottages during the summer months. They did not have an HST #, did not charge HST, nor claim HST on anything. They always kept their income under $30K.
Our intention is to rent the house on a long term basis to the current owners until we are ready to move there.
Eventually, we plan on starting up the cottage rental business but not right away.
Question 1 – will we have to pay HST on the purchase ? The purchase agreement states that IF HST is applicable on any portion of the property it is our responsibility.
Question 2 -I understand there are ways around paying the HST (register an HST # ?) but I am not clear on how this works.
Question 3 – what are the implications of renting the \\\”vacation home\\\” main house on the property for 10 or so months, keeping in mind that Our plan is to sell our primary residence next year move to the \\\”vacation home\\\” making it our principal residence.
Thanks for your time. Kind regards, Mairi.
Those are all great questions that you should be asking so you understand your HST cost.
Q1 It is the seller that must determine if the HST applies on the sale of the property and inform you whether they expect to collect it on all or a portion of the property.
Q2 The facts and evidence determine how the HST applies currently. There are some that register so HST is not payable currently but then up end paying at a later date. When applying the HST you must consider both the short-term and long-term effects of your holding.
Q3 The rental of a home for a term that is longer than sixty days should not have negative consequences.
Scott Merry
Hi Scott,
I recently accepted an offer to purchase on my vacation rental house that was purchased within the last two years. It was intended for our retirement house but the offer was too good. We use the house for personal use as well as renting it out short term (Airbnb). My lawyer is now not sure whether GST will be asked of us by the CRA. The house was rented approx. 185 days in 2019 and collected under $30,000. The new owners intend to knock it down and build new. We are not registered for GST, nor have we collected it.
Sorry for this long message but no one seems clear on our status. Do we have to add GST to sale and remit? If so, is it based on days rented? The house was intended to be personal and renovated but then Covid has changed our plan. Thank you for your time.
There are number of considerations to be taken into account: what was the primary use of the cottage? You don’t indicate whether the property is available year round. If no, then the primary use appears to be rental. Was the rental of the cottage the priority e.g., if someone wanted to rent the cottage did you prioritize the rental before your personal use?
The application of tax is not always black and white but the facts and intent do matter.
Scott Merry
smerry@bdo.ca
Hi Scott, Thank you for your reply. To answer your questions: The house was intended for personal/family use, and is available year round. We block off our intended dates around holidays and in winter months and rent primarily in high season dates (summer months).
Our personal and family use is always priority as our preferred dates were used.
As previously mentioned, we intended to make this our retirement home and renovate at a future date but we received a generous offer to sell.
Thanks
There are two things to remember in your situation:
1. Should CRA look at your ownership of this property and question the application of GST what evidence do you have to support your position it was primarily personal use.
2. If CRA decides that GST should apply after the fact you are responsible for the GST not collected. Is that a risk worth taking? You have indicated someone is paying a price you can’t refuse.
Scott
Hi
My wife and I purchased two cottages in a residential zone. These were used as short term rentals before the sale. We provided a gst/hst number. Seller said hst would be washed out. We plan to keep one cottage as primary and rent short term the other. Would we have to pay 50% of the hst of the FMV?
Based on the facts you have laid out your approach sounds reasonable. The other consideration for the rental property is whether there is a reasonable expectation of profit in the short term rental, if not the rental property may be subject to HST as well. Individuals that carry on a business have an added burden of proving there is a reasonable expectation of profit in their endeavor before GST/HST can be claimed back.
Scott Merry
smerry@bdo.ca
Hi Scott,
My husband and I would like to purchase a cottage near Mont Tremblant that we plan to use exclusively for commercial activities (short term rentals). The cost is approximately $400K plus GST/QST. Would the GST/QST be required to be paid upon purchase in addition to our 20% downpayment is. 80K plus almost $60K in GST/QST? If so, can I claim the ITC assuming I signed up with Revenu Quebec before the purchase? What if I register after the purchase?
Lastly, when I file for the ITC do I get the money back in hand as a refund or does it sit as a “credit” against which future tax I collect is applied against? Wondering this from a cash flow perspective. If I make less than $30K in the first 12 months of operations would I have to pay some of the ITC back?
Thank you so much!
If you and your husband register for both GST and QST prior to taking title to the property you may not be required to pay the sales tax at the time of the purchase. One of the considerations is whether the cottage is considered a residential property. If it is defined to be a residential unit you may be required to pay the tax and make a claim for it after the fact, if applicable. Your questions have some complexity to them.
Registering after the fact and requesting a refund may have some complexities if you have other business’ and are not considered to be a small supplier at the time of registration.
Scott Merry
smerry@bdo.ca
Great article! Thank you for publishing.
My question is around a vacation condo and how CRA would classify it for HST upon sale in the future if:
-short term rental availability is less than 50% of the year
-at some point during the year there may be a longer-term tenant for 30 days or more (above and beyond the short term rental availability)
-personal use for the remainder
Rental income will not exceed 30k on the property.
Thanks in advance!
When looking at these situations one must consider what evidence do I have to support my position, the CRA has the benefit of hind sight when reviewing a taxpayers use of a property. As a taxpayer the consideration of whether tax applies is an ongoing process at the beginning what is the intended use of the property, what steps have i taken to make move that intention forward, what is the evidence I have to support that intention… Down the road one should look at how that intention was carried out, did the intention work out, did something happen that frustrated that intent, is there a tax consequence?
Based on what you are intending to do it appears that HST would not apply but what evidence do you have to support that is what you plan on doing, a business plan? Short term contract with a service to maintain/rent the property? I recommend looking back after a year and see what actually transpired and ask that question again.
Scott Merry
smerry@bdo.ca
Hey Scott!
Great article and thank you for publishing! I have had a look at your other articles, but am having trouble finding the answer to the exact question below (if I missed it in any comments sections I apologize for doubling up questions and I hope it is okay that I post it here):
I am curious about acquiring GST applicable property personally (ski vacation condo and not held in a corp). The seller has advised that it is GST applicable, as they should, so that is fine. However, I am curious what my options are with that initial GST cash outflow? Is there a way to get that GST back for now (as opposed to just paying it out and losing it)? Initially I was thinking that I would use this property for short-term rentals as well as for my own use a couple of times each year (maybe 1 weekend a month); however, I think I read in one of your other articles that if it is not use solely for commercial activity we couldn’t use those ITCs? Would it be best to only use it for short-term rentals for the first year or something and then eventually start to use it for personal use the odd time so that we can claim the initial ITC? Or does it not matter?
I am fine with charging/remitting GST when we short-term rent it and find with remitting GST when we sell, I am just having a hard time paying that much GST and it being a sunk cost.
Thank you very much for your time Scott!
Hi Michael,
It can be a challenge to know when a word should be interpreted strictly or has some leeway such as the word “exclusively”. For HST purposes the word exclusively is used in a number of different provisions within the legislation, the Canada Revenue Agency has accepted exclusively to mean 90% or more or “substantially all” of the use should be in a commercial activity. In your example of using the cottage one weekend a month the requirement of being used exclusively should still be met and so the tax paid should be recoverable as an ITC.
Scott Merry
Hi Scott.
Thanks for all the advice on the different scenarios. If a couple purchased some property in Ontario and built a cottage on it to be used as a rental (rented for 13 weeks bi-weekly the first year available) I understand they cannot recover the HST New Housing Rebate for rentals. If the time period allows, if they switch to 30 day rentals could they apply for the New Housing Rebate? My first thought is to say no since it still wouldn’t be considered residential rent due to the fact that it would be different people every
0 days. I was just wondering what your thoughts were. Regards, Leah
Hi Leah,
You are correct. There would not be any rebate available as the home is not occupied as a primary residence by individuals.
Scott