GST on Short-Term Rental Property Sales and Change of Use

Introduction

Short-term rental properties (like Airbnb or vacation rentals) are treated very differently from traditional long-term rental homes when it comes to GST. In British Columbia, the federal GST rate is 5%, and whether or not it applies on the sale of a property can depend on how that property was used. The Canada Revenue Agency (CRA) considers short-term rentals (generally stays of less than a month) to be a commercial activity, whereas long-term residential rentals are an exempt residential use. This means that selling a property used 100% for short-term rentals is usually a taxable sale (GST applies), while selling a property used for long-term residential tenancy is generally GST-exempt . The tricky part is when a property has mixed use – for example, part short-term rental and part long-term rental or personal residence. Below, we break down how the CRA assesses GST in each scenario, focusing on BC and recent clarifications (including court cases) that shed light on these rules.

Short-Term vs. Long-Term Rentals: Why It Matters for GST

Under GST rules, the sale of used residential property is normally exempt from GST. A “used residential complex” – such as a home or condo that has been occupied as a place of residence – can be sold without charging GST . However, there is an important exception: if the property has been used in a way similar to a hotel (i.e. frequent short stays), it may lose its exempt status. CRA’s position is that a property operating entirely as a short-term rental (with stays under 30 days, typically) is engaged in a commercial activity, not a purely residential use . In CRA terminology, such a property is often called a “hotel-type” property – basically, a home that is being used like a hotel or motel.

For GST purposes, a property is generally considered “hotel-type” (commercial) if it meets all of these conditions :

• Used as a hotel or similar – It’s being rented out like a hotel/motel or B&B (short-term, with furnished accommodation and services/utilities provided).

• Not primarily a personal residence – The owner (if an individual) does not use the property mainly as their home.

• Nearly all rentals are short-term – All or substantially all (90% or more) of rental periods are for less than 60 days each.

  
  

If a property checks all three boxes, the CRA does not consider it a normal residential complex. Instead, it’s considered a commercial property for GST. All rental income from such a property is taxable (GST must be collected on the short-term rental charges), and critically, the sale of the property itself is a taxable supply . In other words, a 100% short-term rental property is subject to GST on sale – the same as if you were selling a hotel or any commercial real estate.

By contrast, a property used exclusively for long-term residential rentals (tenancies over a month, as in typical leases) remains a residential complex. Its sale is an exempt supply – no GST is charged to the buyer . Long-term rental income is exempt from GST, and the eventual sale of such a property (assuming it’s not new construction) is generally free of GST. The CRA explicitly notes that if a previously occupied home was used primarily as the owner’s residence or for long-term rental, its sale can qualify as an exempt used residential property sale .

100% Short-Term Rental Properties – Treated as Commercial

If you have been using a property entirely for short-term rentals, the CRA’s position is that you are effectively running a small commercial lodging business. Such a property would meet the “hotel-type” criteria above. Upon sale, GST will apply on the full selling price . For example, if you own a condo in Whistler that you rent out on Airbnb year-round (and you don’t live there yourself at all), selling that condo for, say, $800,000 means you or the buyer would have to remit 5% GST on the sale (an extra $40,000 in tax). This can surprise sellers and buyers, since most are used to homes being GST-free when resold. But the tax court has confirmed this treatment. In a 2024 case, a corporation sold a condo that had been rented on Airbnb for over a year, and the court held the sale was subject to GST/HST – the unit was not considered a “residential complex” at the time of sale because it was being operated like a hotel (short stays, furnished, with utilities included) . It didn’t matter that the condo had been rented long-term in earlier years; once it shifted to primarily short-term use and was sold in that state, the entire sale became taxable. The lesson is clear: a fully short-term rental property is treated as commercial by the CRA, so budget for GST on its sale.

It’s worth noting that if you’re a GST-registered owner of such a property, you likely have been charging GST on the rental income already. One benefit is that you can claim input tax credits (ITCs) on expenses (including a portion of the purchase price if you were registered at purchase) – but the flip side is that the sale won’t be exempt. In fact, CRA warns that once you’ve claimed ITCs on a property, any subsequent sale will usually be taxable . Owners of pure short-term rentals in BC should plan ahead for the GST hit on sale or consider winding down the short-term use before selling (as discussed below).

Long-Term Rental Properties – GST-Exempt on Sale

By contrast, properties used solely for long-term residential rentals are generally not subject to GST on sale. Long-term rental use means tenants occupy the property as a residence, typically under leases or arrangements longer than one month at a time. These rentals are an exempt supply for GST – landlords do not charge GST on monthly rent, and accordingly they can’t claim GST ITCs on expenses either. When it comes time to sell such a property, it will usually qualify as the sale of a used residential complex (assuming it’s not a new build or substantially renovated by the owner for sale), which is exempt from GST under the Excise Tax Act .

For example, if you own a second house in Victoria that you’ve been renting to a family on a year-long lease (and you haven’t used it for short stays at all), selling that house will not attract GST. The purchaser doesn’t pay GST to you on closing, just the usual property transfer tax etc., because the sale is an exempt transaction. The key point is that long-term residential use keeps the property in the “residential complex” category in CRA’s eyes, so no GST on resale. (Of course, if the property was newly constructed and you’re the builder or substantially renovated it, different new housing rules apply – but that’s outside our scope here.)

It’s important to be careful if you’ve mixed in any short-term rentals over the years. A brief period of Airbnb use, especially if incidental, likely won’t ruin the GST-exempt status of a long-term rental property. But as the next section explains, heavy or majority short-term use can jeopardize that exemption.

Mixed-Use Properties: Part Short-Term, Part Long-Term or Personal Use

Real life isn’t always black or white – many properties have mixed uses. For instance, you might live in a house but rent out a basement suite on Airbnb occasionally, or you might own a duplex where one unit is on long-term lease and the other is used as a vacation rental. In these mixed scenarios, how does GST apply on a sale or conversion? The CRA’s approach is essentially to look at the relative extent of short-term rental use and tax that portion accordingly.

• Principal Residence with Occasional Short-Term Rentals: If the property is primarily your home and you only rent it out short-term occasionally (say a few weekends, or a room on Airbnb part of the year), then when you sell your home, it remains GST-free. The short-term rental use is incidental and under 50% of the property’s overall use, so the sale is still seen as the sale of your principal residence (a used residential complex, exempt from GST). CRA guidance indicates that a property used primarily (i.e. more than 50%) as your place of residence stays in the exempt category . Similarly, tax advisors note that if you rent out your property less than roughly 50% of the time as short-term accommodation, you will not be required to charge GST/HST on the sale . For example, suppose you live in a Vancouver condo most of the year but rent it on Airbnb for a total of 100 nights each year (about 27% of the time) while you travel. Your personal use is about 73% of the time – the property is clearly primarily your residence. When you eventually sell the condo, you would not add GST to the price. The occasional Airbnb activity doesn’t convert your home into a commercial asset for GST purposes. (Do note, however, that if you registered for GST to claim ITCs on expenses, it complicates things – but assuming you stayed a small operator, you likely didn’t register and didn’t claim any GST credits, so the sale remains exempt.)

• Properties Split Between Long-Term and Short-Term Rental Use: Many landlords in BC use a hybrid strategy – for instance, rent to long-term tenants in the low season and do short-term vacation rentals in the tourist high season, or have one unit of a multi-unit property on long-term lease and another unit on Airbnb. In such cases, the property is only partially used in commercial (short-term) activities, and thus GST will be applicable on a proportional basis when the property is sold. Essentially, you need to pro-rate the GST according to the portion of the property that was used for short-term rentals.

  
  

How do you determine the portion? It can be measured by factors like square footage, time, or revenue share – but one straightforward approach is by space if the uses are physically separate. For example, imagine you own a two-unit townhouse in Victoria: you rent the upper unit to a long-term tenant (yearly lease) and you rent the lower unit on Airbnb weekly. If the two units are of equal size/value, we can say 50% of the property was used for exempt long-term rental and 50% for taxable short-term rental. If you sell the entire building for $1,000,000, approximately half the value is attributable to the short-term rental unit, so you would charge GST on that portion (roughly $500,000 * 5% = $25,000 GST) while the other half of the sale would be exempt. In practice, the sale would be structured or reported such that GST is only on the short-term rental portion. Another example: suppose you have a large house and you rented out one bedroom on Airbnb, which constituted about 20% of the home’s area, while the rest was long-term rented to a student. If you sell the house, you might allocate 20% of the sale price to the short-term rental portion and charge GST on that amount, and treat the remaining 80% as an exempt sale of a residential complex. The key is that the long-term rental portion retains its GST-exempt status, and only the short-term rental portion is taxable.

In situations of mixed use, it’s wise to get professional advice on the allocation and ensure the sale agreement specifies the correct tax treatment. If the short-term rental portion was minor (less than 50%), in many cases the CRA would still consider the property primarily used for long-term residential purposes overall, and the sale might be treated as fully exempt. But if the short-term portion is significant or clearly demarcated (like one unit of a duplex), expecting a pro-rated GST application is prudent. Indeed, CRA policy is that if a property was used primarily to make taxable short-term rentals (>50% of the time), then the sale is taxable . Conversely, if the taxable use was secondary, they may allow the sale to pass as exempt. To be safe, plan on charging GST on the short-term rental portion of a mixed-use property sale, rather than risking non-compliance.

Converting a Short-Term Rental to Personal or Long-Term Use

“Conversion” of use can also trigger GST consequences even if you don’t sell the property. With housing policies evolving (especially in BC municipalities that are cracking down on short-term rentals), many owners might decide to convert an Airbnb back into a long-term rental or into their personal residence. CRA has rules for such changes: when you convert a property from taxable use to exempt use (for example, from a short-term rental business into a long-term rental or to your own home), the change is treated as a deemed sale and repurchase of the property at fair market value for GST purposes . In plain terms, you have to self-assess GST on the fair market value at the time of conversion. The CRA actually deems this scenario to be a “substantial renovation” of the property – effectively treating your formerly short-term rental property as if it were newly built and now put to long-term use . This means you, the owner, must pay 5% GST on the market value at that point (even though you haven’t sold the property to anyone).

This sounds harsh, and it is – it’s essentially an exit tax for taking a property out of the short-term rental pool. There is a bit of relief available: if you convert a property to long-term residential rentals, you may qualify for the New Residential Rental Property Rebate, which can refund a portion of that self-assessed GST (up to 36% of the GST, capped based on the value) . However, not all properties qualify (the rebate phases out for higher-value properties), so some owners may end up bearing the full GST cost. For instance, if you have a small vacation cabin you’ve been renting out short-term and you decide to start renting it to a tenant year-round instead, you must declare the change in use and pay GST as if you sold the cabin to yourself. If the cabin is worth $500,000 at that time, the GST self-assessment would be $25,000. You could then apply for a rebate (if eligible) to get some of that back. After this deemed “sale”, going forward the cabin’s rent is exempt and you no longer charge GST on rental income (and you also stop claiming ITCs on expenses). Essentially, you’ve bought your property out of the GST system by paying the tax on its value at conversion.

On the flip side, converting a property from exempt use to taxable use (for example, turning a long-term rental or a former residence into a dedicated short-term rental business) can trigger a different self-supply rule. In that case, the property enters the commercial stream. CRA will deem you to have acquired the property at that point for GST purposes, allowing you to claim input tax credits on it, but also potentially making the eventual sale taxable. This scenario was exactly what happened in the earlier-mentioned Tax Court case – the owner switched a condo from long-term tenants to Airbnb, which triggered a deemed self-supply (they were considered to have “purchased” the condo for use in commercial activities as of the conversion date) . That set the stage for the sale a year later to be taxable. The general rule is: each time you change the use of a property, think about GST. You might have to pay GST at that point or later, depending on the direction of the change.

To summarize the conversion rules in simpler terms: if you stop doing short-term rentals and revert to long-term use or personal use, you’ll likely owe GST on a deemed sale (with potential rebates) . If you start doing short-term rentals after a period of long-term use, you may have a one-time GST accounting to do (and the property might become subject to GST when sold). Always inform the CRA or get professional guidance when making such changes, to ensure you handle the self-assessment rules correctly.

Recent Court Case Highlights (2019-2024)

Several recent cases and CRA rulings have clarified these GST treatments, especially as short-term rentals have become more popular:

• 1351231 Ontario Inc. v. The King (2024 TCC 37): This Tax Court of Canada case (currently under appeal) is a key example that put Airbnb-style properties under the microscope. In this case, a condo was rented to long-term tenants for 9 years, then switched to Airbnb rentals for about 14 months before being sold. The seller did not charge HST on the sale, assuming it was an exempt residential sale. The CRA assessed GST/HST on the sale, and the court agreed with the CRA. The court found that at the time of sale, the condo was essentially operating as a short-term rental business (hotel-type), and thus it failed to qualify as a “residential complex” for exemption . The fact that most of its history was long-term rental did not save it – what mattered was the use at the point of sale. This case sends a strong warning: even a temporary period of short-term rental use can taint a property’s GST status if you sell while the property is in short-term rental mode. In practical terms, if you plan to sell a rental property that you’ve started using for Airbnb, you may want to revert it to a long-term lease well in advance of the sale (and document that change) or be prepared to charge GST. This case has garnered attention across Canada because many owners didn’t realize how a bit of Airbnb activity could trigger tens of thousands in tax on sale.

  
  

• CRA Guidance and Interpretation Bulletins: The CRA has issued guidance like GST/HST Info Sheet GI-025 and various policy statements that outline the principles we’ve discussed. For example, CRA’s publications emphasize the “primary use” test (50% rule) – if a property was primarily used by the owner as a residence, its sale is generally exempt . They also explicitly define short-term rentals as less than one month of continuous occupancy and state that running a rental for stays under 60 days in a hotel-like manner will make its sale taxable . These interpretations have been consistent over the years, but only recently are they widely known, due to the rise of short-term rental platforms. In BC, tax professionals are increasingly citing these rules in client advisories, given the province’s high number of vacation rentals.

  
  

• Other Cases and Rulings: While the 2024 case is the headline, other rulings have touched on related issues. For instance, there have been GST New Housing Rebate cases where owners claimed a unit was a primary residence but in reality it was often rented short-term – those cases also hinge on the nature of use. The common theme is the CRA and courts looking at objective use of the property (how often it was rented short-term, was the owner actually living there, etc.) rather than just what the owner intended. We’ve also seen CRA technical interpretations confirming that in a mixed-use sale, an allocation should be made so that the portion of the property used for exempt residential leasing remains exempt on sale, and only the portion used for taxable rentals is taxed. Unfortunately, these situations can be complex, so getting a GST ruling or professional advice is wise if significant money is on the line.

Conclusion

Navigating GST on short-term rental properties in British Columbia requires understanding how CRA classifies your property’s use. A good rule of thumb is: If your property has been operated like a business (short-term stays), expect GST to apply on a sale or major change in use; if it’s been used mainly as a home (yours or a tenant’s), GST likely won’t apply. Purely short-term rental properties are considered commercial assets – you must charge 5% GST on sale (though the buyer may be able to claim it back if they continue the commercial use). Purely long-term rental or personal-use properties can be sold GST-free. In between those extremes, carefully gauge the extent of short-term use. If it’s minor, you’re probably safe to treat the sale as exempt. If it’s substantial, be prepared to apportion GST on the sale or restructure your usage before selling. We provided examples: from the homeowner who occasionally Airbnbs a room (no GST on sale), to the investor who splits a building between long-term and short-term tenants (partial GST on sale), to the owner of an all-Airbnb vacation condo (full GST on sale).

Lastly, keep in mind the conversion self-supply rules – if you decide to convert an Airbnb rental into a long-term rental or your residence, the taxman will deem you to have sold it to yourself and you’ll owe GST at that point (with potential rebates). This is an often-overlooked cost of complying with new short-term rental restrictions. Conversely, switching a home to short-term rental use can trigger GST accounting and eventually a taxable sale.

Given the significant dollars at stake and the evolving enforcement in this area, it’s wise to consult an accountant or tax advisor familiar with real estate whenever you plan to sell or change the use of a rental property. The CRA’s stance is clear that GST can’t be ignored for short-term rental properties – but with proper planning, you can avoid surprises. Being informed of the rules (as outlined in CRA guides and recent court decisions) will help you manage or mitigate the GST costs associated with your BC property. Always disclose the correct usage to your realtor and lawyer when selling, so the purchase agreement can address GST correctly (nothing is worse than an unexpected GST liability on closing because a property was miscategorized). With the knowledge of how principal residence use, long-term tenancies, and short-term rentals each affect GST, you can make better decisions about your property investments and compliance in British Columbia’s dynamic real estate market.

Sources:

• Canada Revenue Agency – GST/HST Info Sheet GI-025: Vacation Properties by Individuals (explains GST on purchase, use, and sale of vacation/short-term rental properties) .

• Canada Revenue Agency – Excise Tax Act, Schedule V, definition of residential complex (excludes hotel-like properties with >90% short-term rentals) .

• 1351231 Ontario Inc. v. The King, 2024 TCC 37 – Tax Court case confirming GST applies to sale of an Airbnb rental condo .

• S+C Partners Tax Insights – Short-term vs. long-term rental properties (notes the “>50% short-term use = GST on sale” guideline) .

• BDO Canada – Tax Considerations for Airbnb Hosts (cautions that a home used 90% for short-term rentals loses exemption and that reverting to personal use triggers GST on FMV) .

• Peter Mitchell, CPA – “Sale of a Short-Term Rental Property (GST)” (April 22, 2024) and related commentary (discusses hotel-type property criteria and GST implications for sales/conversions in the current regulatory climate) .

• Good Service Tax blog – Tax Trap: Long-Term Rental used as Airbnb (explains change-of-use rule in ETA 206(2) and how even temporary short-term rental use can trigger GST on sale) .