Airbnb Tax Implications

Last year, the Canadian government introduced a new law targeting Airbnb investment properties with specific tax implications. This change makes understanding how the Harmonized Sales Tax (HST) applies to such properties crucial for buyers, sellers, and real estate professionals.

The Basics of HST
HST applies to almost everything unless specifically exempt. Specifically in Real Estate, there are notable exceptions.

HST and Residential Properties
Most resale residential properties are HST exempt, provided the property’s primary use was residential (e.g., housing, not business activities). This includes single-family homes, duplexes, and even large apartment buildings. In these cases, no HST is payable when selling the property. Whether an agent marks “HST included” or “HST in addition” in the sales agreement is irrelevant—it doesn’t apply.

HST and Commercial Properties
Commercial real estate is not HST-exempt, buyers typically pay the purchase price plus HST (13%). However, there’s a mechanism that allows buyers and sellers to jointly elect to bypass the actual payment of HST at closing, provided both parties are HST registrants. This simplifies cash flow since the HST doesn’t need to be paid and later refunded.

Airbnb Properties: A Unique Challenge
Here’s where things get tricky with Airbnb properties. If a property was used for Airbnb, it may no longer qualify as an HST-exempt residential property. Instead, HST may apply on the sale, just like a commercial property. If the buyer intends to live in the property as a residence (not as a business asset), they can’t claim an HST input tax credit. This means buyers effectively absorb the HST cost.

Sellers may see a 13% reduction in net proceeds compared to selling an HST-exempt rental property. This creates significant financial implications for sellers of former Airbnb properties and impacts the overall market value of such properties.

What Does This Mean for Buyers and Sellers?
ALWAYS consult with an accountant or tax professional to understand the full financial impact, advance planning can prevent unpleasant surprises.