Recently, in the case 1351231 Ontario Inc. v. The King, the Tax Court of Canada (TCC) concluded that a condominium (“condo”) rented through the Airbnb platform for short-term rental purposes did not constitute a “residential complex” within the meaning of the ETA since it was “similar premises to a hotel, a motel, an inn, a boarding house and a lodging house”.
1351231 Ontario Inc. purchased a condo as an investment. Thus, for the first nine years, the appellant rented the condo under long-term leases (i.e., more than 60 days) but, for the last 14 months, she rented it through the Airbnb platform under short-term leases (often just one night). She then sold the condo, thinking its sale was exempt under section 2 of Part I of Schedule V of the ETA.
The TCC confirms that the determination of whether the building sold is a residential building must be made at the time of the sale, and not over the entire period of possession of the property. It was therefore irrelevant that the condo, over a period of 10 years, was used for 9 years for exempt supplies.
Since at the time of the sale, the condo was not a “residential complex”, the supply by sale was not an exempt supply under section 2 of Part I of Schedule V of the ETA and was therefore taxable.
As you see, a change of use can have significant tax consequences. This summary is only a simplification of the application of rules, do not hesitate to consult a tax professional to discuss it.
