Generally, it is taxable where the owner does not live in the unit and it’s offered year round for short term accommodations. The answer to this question is a little more nuanced because essentially three tests have to be met for the residential unit to be excluded from the definition of a residential complex and therefore excluded from the common exempting provision for used residential real property. The tests are as follows:
- Is it a hotel, motel or similar premises used for short term lodging? The CRA has a publication that discusses this question, GST/HST Policy Statement P-099, The Meaning of ‘Hotel’, ‘Motel’ or similar.
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Are substantially all (90% or greater) of the supplies of the accommodations for sixty days or less? The CRA also has a publication that explains this question, GST/HST Policy Statement P-053, Application of all or substantially all to residential complexes.
- Does the owner of the residential unit or their relation occupy the unit primarily (greater than 50%) as a place of residence? The CRA does not have a publication that specifically addresses this question in the context of short term accommodations but does have a publication that explains the concept of “place of residence”, GST/HST memorandum 19.2, Residential Real Property.
So, if you own a condo or house and are renting it for short term accommodations year round, and don’t occupy it yourself, there’s a very good chance that the eventual sale will be taxable. And before you say that you will just rent it long term before selling it, that won’t save you from tax liability because two other provisions (sections 190 and 191) of the Excise Tax Act kick in where you take real property that is not a residential complex and subsequently change its use to a residential complex and lease it as a place of residence to individuals. First, you are deemed to have substantially renovated the property, which makes you a “builder” (a very complex term for someone in the business of supplying real property) and as a builder who supplies the residential unit as a place of residence, you are deemed to have supplied it by way of sale and to have paid as a recipient, tax on the fair market value of the property. So instead of getting out of the tax, you have created a tax liability that is due on your next return. However, not all is lost, if you can find a buyer who is registered for GST/HST purposes, they are required to self assess the tax and you are relieved of any tax liability on the sale. The ideal situation you can find is to sell your AirBnB to a buyer who is registered for GST/HST purposes and wants to continue operating it the same way. That person will self assess the tax on their own return and claim the corresponding input tax credit so that no amount of tax is to be remitted.