The recent Tax Court of Canada decision requiring Ontario homeowners to pay a 13% HST on the sale of properties used for short-term rentals has sent shockwaves through the real estate community. Traditionally, residential sales were exempt from HST, but this new ruling means properties rented frequently through platforms like Airbnb or Vrbo are now considered commercial assets subject to additional tax.

This decision came after an Ottawa condo owner, who initially leased the property long-term, switched to short-term Airbnb rentals between 2017 and 2018. When he sold the condo in 2018, the Canada Revenue Agency (CRA) deemed the property a commercial enterprise, similar to a hotel, and assessed $77,079.64 in HST on the sale price. This ruling emphasizes the legal reclassification of short-term rental properties as commercial entities, and it establishes a precedent that could impact property owners across the country. If short-term rental owners do not revert properties to residential status before selling, they may face this significant tax burden.

What Does This Mean for Short-Term Rental Owners?

For property owners who’ve embraced short-term rentals to enhance revenue, the ruling presents a challenging scenario. The tax applies to the full sale price, meaning landlords could be taxed tens or even hundreds of thousands of dollars based on their property’s value. Now, property owners must consider whether to continue using their homes for short-term rentals or revert to long-term rentals or residential use well before a sale to avoid this tax.

Additionally, owners need to document property use accurately to anticipate tax obligations before selling. The ruling stresses the distinction between commercial and residential use, which the CRA is likely to monitor closely in similar cases moving forward. Provinces like British Columbia are already enforcing stricter regulations on short-term rentals, aiming to alleviate housing shortages by redirecting homes back to the long-term market — a movement Ontario may consider if housing supply pressures increase.

Managing Rental Compliance and Planning with Cozii Proptech

For property owners navigating this changing landscape, Cozii Proptech provides a robust, AI-powered platform designed to support landlords, property managers, affordable housing providers, and community associations in maximizing revenue while staying compliant with evolving regulations. Cozii’s workflow solutions simplify property management by allowing users to track rental activities, document revenue sources, and assess potential tax impacts through an intuitive dashboard.

With features that help plan rental strategies effectively, Cozii enables landlords to analyze rental income and property usage, identifying the most tax-efficient approaches. Cozii also provides tailored solutions for community associations and affordable housing providers, allowing them to optimize property management while adhering to policy changes affecting short-term rental use.

Cozii’s platform is the go-to solution for small and medium landlords aiming to adapt to these regulatory changes confidently. By integrating powerful insights and financial tracking, Cozii helps property owners make informed decisions to preserve profits and manage properties efficiently in today’s complex market.