By Patrick O’Neil and Jessica Landry
Under the Excise Tax Act, every sale of property is taxable unless it meets certain exemption criteria. A recent Tax Court of Canada decision determined that the sale of a short-term rental property in Ontario, that had been listed on Airbnb, was subject to HST. The corporation was assessed over $77,000 in HST that was collectable on the sale of the property.
Facts of the Case
In this case, a condominium in Ottawa was used as an income property by an Ontario corporation. The property was purchased in 2008 and used primarily for long-term leases (over 60 days) from the date of purchase until February of 2017. At that time, the property was listed on Airbnb and generated over $54,000 in gross revenue from the time it was on Airbnb until the property was sold in April of 2018.
The corporation was then assessed and found responsible to pay HST on the sale under the Excise Tax Act. They appealed the assessment to the Tax Court of Canada and their appeal was dismissed. The taxpayer further appealed to the Federal Court of Appeal, and the appeal was dismissed on March 5, 2025.
The Tax Court of Canada determined that the tax assessment was correctly applied. The reasons they gave are summarized below.
Summary of Reasons for the Decision
Under the Excise Tax Act any sale of real property is taxable unless it meets certain criteria which makes it exempt. If someone who is not a builder is selling a “residential complex” (defined below) and they have not claimed any input tax credits with respect to the purchase or improvement of the residential complex then the sale will be tax exempt.
The corporation selling the condo was trying to argue that this exemption applied to the sale of their income property. The corporation was not the builder of the condo and had not claimed any input tax credits with respect to the purchase or improvement of the property, so those two aspects were not looked at in great detail. The decision turned on whether the condo met the definition in Schedule V of the Excise Tax Act for a “residential complex”.
The condo would not qualify as a “residential complex” and would not be tax exempt if:
- it was part of a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises;
- it was not owned by an individual and used primarily as a place of residence for the individual and;
- all or substantially all of the leases, at the time the condo was sold, were for less than 60 days.
The Court determined that the condo was similar to a hotel, motel, inn, boarding house, or lodging house because it was leased for periods as short as one night, it was furnished, and the costs of heating, air conditioning, electricity, and Wi-Fi were included. The condo was not owned and used primarily as a residence by an individual, it was owned by a corporation and rented out. They also found that all or substantially all of the leases, at the time the condo was sold, were for less than 60 days.
The Court decided that the “all or substantially all” test would only apply at the time the condo was sold.
In summary, the condo did not fit the definition of a “residential complex” because the Court found that 1) it was similar to a hotel or motel, 2) it was not owned and used as a residence by an individual, and 3) all or substantially all of the leases, at the time the condo was sold, were for less than 60 days it. For this reason, the sale of the condo was subject to HST under the Excise Tax Act.
The corporation tried to argue that because they owned the property for almost ten years and only rented it on Airbnb for 14 months, that it did not meet the “all or substantially all” test. The court determined that the test only applied at the point in time when the condo was being sold.
Conclusion
Selling a rental property that is used similarly to a hotel, is not used primarily as a place of residence, and, at the time the property is being sold, all or substantially all of the leases are less than 60 days, will likely attract HST on the sale.
This article is for information only and is not intended to be legal advice. If you have any questions or would like further information, you should consult a lawyer.
