If you’re a homeowner thinking of listing your unit on Airbnb or any short-term rental platform, beware—you could be sitting on a costly tax time bomb.
A recent Federal Court of Appeal decision has sent shockwaves through the local real estate and rental community by confirming that switching from long-term to short-term rentals can trigger a deemed sale and expose you to a hefty Harmonized Sales Tax (HST) bill. In one case, that bill amounted to $77,079.64.
What Happened?
The case involves a corporate-owned condo purchased in Ottawa in 2008, initially rented on long-term leases (≥ 60 days). In February 2017, the owner switched to renting it out via Airbnb with short-term stays (mostly under 7 nights) until it was sold in early 2018.
Both parties expected the sale to be exempt from HST. However, the Canada Revenue Agency (CRA) reassessed the transaction, demanding over $77,000 in HST — a decision upheld by the Tax Court and confirmed by the Federal Court of Appeal in March 2025.
Why Did This Happen?
The legal crux lies in change of use rules under the Excise Tax Act (s. 206(2)) and the definition of a residential complex under HST legislation:
- Commercial Use = Taxable Supply: When the property is used primarily for commercial activity (short-term rentals with stays under 60 days), the sale is treated as a taxable supply under s. 123(1) of the Excise Tax Act.
- Loss of Residential Status: Condos used like hotels (furnished, utilities included, short stays) do not qualify as a residential complex for HST exemption.
- Deemed Sale on Change of Use: Listing on Airbnb triggered a “deemed sale,” resetting the property’s tax status before the actual sale.
- De Minimis Rule Doesn’t Apply: The court rejected arguments that short-term use was minimal compared to the entire ownership period. Tax status is assessed at the time of change, not averaged.
What This Means for You
If you switch your condo to Airbnb or short-term rentals and then sell it, you may owe HST on the entire sale price—even if short-term rentals were a small portion of your total ownership.
The CRA is actively auditing and reassessing these transactions.
How to Protect Yourself
- Monitor Lease Lengths: Keep detailed records of lease terms to prove long-term use if applicable.
- Return to Long-Term Use Before Sale: If possible, revert to long-term leases (≥ 60 days) and maintain that status until the sale to retain residential-complex exemption.
- Seek Expert Advice: The interplay of tax law and real estate use is complex—professional legal and tax guidance is crucial.
References and Further Reading
- Pallett Valo LLP, Tax Court of Canada holds that the sale of an Airbnb rental property is subject to GST/HST https://www.pallettvalo.com/articles/tax-court-of-canada-holds-that-the-sale-of-an-airbnb-rental-property-is-subject-to-gst-hst/
- RSM Canada, The Hidden Tax Trap on Condo Sales (2025) https://rsmcanada.com/insights/tax-alerts/2025/the-hidden-tax-trap-on-condo-sales.html
- Aaron.ca, Taxpayers Who Sell or Have Sold Airbnb Units Are Now On Notice — The CRA is Watching https://www.aaron.ca/taxpayers-who-sell-or-who-have-sold-airbnb-units-are-now-on-notice-the-cra-is-watching/
- DJB Lawyers LLP, Short-Term Rentals and GST/HST (2025) https://djb.com/2025/04/short-term-rentals-gst-hst/
Disclaimer
This article is provided for general informational purposes only and does not constitute legal, accounting, or tax advice. We are not lawyers or accountants. Before taking any action based on the information provided herein, please consult a qualified professional who can advise you based on your specific circumstances. We disclaim any liability for decisions made or actions taken based on this post.
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