Airbnb Property Owners Beware: Ontario Court Says You Owe HST on Sale

In 1351231 Ontario Inc. v. The King (2024 TCC 37), the Tax Court of Canada (TCC) held that a condo initially used for long-term rentals but later listed on Airbnb did not qualify as a “residential complex” under the Excise Tax Act (ETA), making its sale subject to HST.

The corporation had purchased the unit in 2008, treating it as HST-exempt. It was rented out long-term (over 60 days) for nine years, maintaining its exempt status. In 2017, the unit was switched to short-term Airbnb rentals, and then sold in 2018. The CRA assessed roughly $80,000 in HST, arguing the sale was taxable.

Under the ETA, a property can only qualify as a residential complex if it isn’t used as a “hotel, inn, lodging house or similar premises” where 90% or more of rentals are under 60 days. The TCC found that Airbnb use met this test, and the switch to short-term rentals triggered a “change in use” under s. 206(2), making the unit’s subsequent use—and its sale—fully taxable.

The corporation argued that under s. 197, since short-term rentals made up less than 10% of the property’s use over its lifetime, the property remained exempt. The court rejected this, clarifying that s. 197 did not override the earlier change in use under s. 206(2).

This ruling is a warning to tax practitioners: using residential properties for short-term rentals—even occasionally—can jeopardize HST exemptions and trigger significant tax liability on sale. The CRA continues to audit such scenarios, often years later, reducing expected profits from these activities.

Key Takeaways for Homeowners & Investors:

(1) If you use your property for short-term rentals, especially on platforms like Airbnb, you could be on the hook for HST when you sell, even if it’s a resale unit.

(2) The property might lose its “residential complex” exemption if it’s operated similarly to a hotel (short stays, utilities included, furnished setup).

(3) Before selling, it’s essential to get legal and tax advice—especially if the property has a mixed-use history.

(4) Buyers should also protect themselves by requesting a Section 194 certificate from the seller confirming whether the transaction is HST-exempt

If you are thinking of purchasing a property to rent out in Toronto or any other city in Ontario, call Capulli Law LLP – we are always available to help.