QUESTION:
We are considering renting out our cottage for a few weeks in the summer. Are there any tax implications of short-term rental properties we should be aware of?
ANSWER:
The short answer is yes: in addition to reporting the rental income and any related expenses on your tax return, there are several possible tax implications to be aware of when renting out your home or cottage. Here is a high-level overview of some key considerations:
Do you need to collect and remit GST/HST?
Long term-rentals are essentially exempt from GST/HST, but short-term rentals are not.
A property is generally considered a short-term rental when rental periods are less than 30 days and the rental rate is more than $20 a day. If you are planning to rent out your property for one- two- or three-week periods, it would be considered a short-term rental.
Whether or not you are required to charge HST on your short-term rental is primarily determined by the amount of rental income you earn.
Generally, if you (and any associated parties) earn more than $30,000 over four consecutive calendar quarters from rental income (or any other business revenue) you will need to request a business number from the CRA and start charging sales tax on your rental fees beginning at the end of the month following the quarter in which you exceed the $30,000 threshold. You will also be required to file regular GST/HST returns to report the collected tax to the CRA.
Renting your property through an online platform
As of July 1, 2021, new rules apply to online accommodation sites like Airbnb. The aim is to ensure that all short-term rental income (including listing price, cleaning fee, and/or guest service fee) is subject to GST/HST when supplied through a digital platform.
Note that you do not need to be registered for GST/HST to list your short-term rental on a digital platform. Small supplier hosts have no obligation to collect and remit sales tax on their short-term rental. Instead, the law requires the digital platform to collect and remit these taxes on your behalf.
On the other hand, if you are registered to collect and remit GST/HST, it is important to provide this information to the digital platform so that they don’t collect and remit sales tax on top of your accommodation price, which would result in double taxation.
Voluntary registration
You may choose to register voluntarily for GST/HST, which would allow you to recover the sales tax paid on expenses related to your short-term rental income. It may also allow you to recover some or all of the GST/HST you may have paid on the property when you purchased it.
But note, in addition having to then collect and remit GST/HST on your short-term rental income, this may also result in your property’s status as a personal use property being questioned, and some or all of the Principal Residence Exemption being challenged when you sell it.
Read our Insight: Capital gains and cottage ownership – what you need to know
How much tax do you pay when you sell a rental property Canada?
Property that is used primarily to generate income will generally not qualify for the Principle Residence Exemption when you sell it. Which means you could be on the hook for capital gains tax. The capital gains inclusion rate is 50% in Canada, so you would need to include 50% of your capital gains as income on your tax return.
Properties used primarily to provide short-term accommodation are taxable when sold.
If you have been renting out your property more than 50% of the time during your ownership, you may also need to charge GST/HST when it’s time to sell. This means you would need to state on the Agreement of Purchase and Sale that GST/HST is “in addition to” to the purchase price” — which could make your property less attractive to buyers looking for a personal use property.
S+C Partners is committed to helping you
There are numerous factors to consider when deciding to rent out your cottage or other residential property. This Insight has only provided a broad overview of a few key considerations. We strongly encourage you to reach out to your accountant or financial advisor to discuss your particular situation. The dedicated tax team at S+C Partners is here to support you. If you have any questions about the tax implications of short-term property rentals, please call us at 905-821-9215 or email us at info@scpllp.com.
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