Canadian homeowners may want to think twice before listing their properties on Airbnb, as they may have to pay a 13% tax on the property if they sell it.

The relatively new tax ruling follows a ruling earlier this year by the Tax Court of Canada that found properties that are regularly rented out on short-term listing platforms are subject to HST on the property when they are sold. This could equate to hundreds or even thousands of dollars in taxes.

The tax rules apply to any type of property, including condos, townhouses and single-family homes, as long as they are consistently used for short-term rentals (less than 28 days) on platforms like Airbnb and VRBO. Tax implications also apply to furnished short-term rentals with utilities included and if the property resembles a hotel-type business model.

The court ruled that properties used for consistent short-term rentals actually operate as commercial properties, not residential properties. The decision was made in the case of an Ottawa condo owner who was subject to GST/HST after renting the unit on Airbnb for several short-term leases for 14 months before selling it.

The owner purchased the unit as an investment property in February 2008 and for nine years rented the unit for long-term leases before listing it on Airbnb, as noted in the 1351231 Ontario Inc. v. King case.

The court found that it was a “residential complex” and was operated as a hotel, so it could be taxed as property, and so the owner had to pay $77,079.64 in tax GST/HST.

According to a statement to the Toronto Star from the president and founder of Barrett Tax Law, Dale Barrett, landlords should be aware that there is a 90 per cent rental of the property threshold, which determines whether they will be subject to HST when the sale or not.

However, this 90 percent still has no clear definition. Any dispute regarding property taxes would be assessed by the Canada Revenue Agency.

HOW TO PROTECT YOURSELF AS AN OWNER

Rental Company Acte.ca says there are ways to protect yourself as a landlord in light of the ruling.

It recommends that landlords keep a detailed record of all rental periods, including the financial trail, understand and monitor their short-term versus long-term rent ratio, plan for the future and ensure they include the potential tax amount when selling their property. .

The company also encourages homeowners to consult with tax professionals and real estate agents when selling their property.