When short-term rental platforms like Airbnb and VRBO first arrived in Ontario in 2009, they offered a new option to home owners or investors who were interested in making money off properties. By competing against hotels and offering short-term rentals, property owners could realize significantly higher rental income than they could by renting out the home or unit to a long-term tenant.
During the initial heyday of these platforms, most municipalities didn’t have restrictions on short-term rentals. It took a while for the platforms to grow in popularity and for municipalities to begin to see some problems as a result of the change.
In Toronto, it wasn’t until early 2018 that City Council approved the regulation of short-term rentals in Toronto. Up until that point, short-term rentals existed in a bit of a gray zone and we saw pure income properties being rented short-term as well as some principal residences.
The initial regulations in Toronto were appealed to the Local Planning Appeal Tribunal (LPAT) and as such did not go into force. The hearing for the appeal took place in August, 2019, and the City eventually received a positive decision at the LPAT, so it wasn’t until November, 2019 that the short-term rental regulations came into effect.
Over time, the rules, fees and taxes that apply to short-term rentals have increased, and we’ve also recently seen the CRA crack down on the sale of such properties, with significant tax impacts. It’s time for a review of what it costs to register and operate an Airbnb, and what happens when you sell such a property, to see if it is still a good option. Here we go!
The Good Old Days
When Airbnb and other short-term rental platforms arrived in Ontario back in 2009, there were no licensing, fees or specific regulations in place for this type of rental. Cities had largely left the regulation of rentals to the province, with bodies such as the Landlord and Tenant Board and legislation such as the Residential Tenancies Act. Short-term stays were done by hotels and those businesses were established and run by corporations, rather than individuals who had a home they didn’t stay in all year round.
The Times, They Are A Changing
By late 2019, rules for short-term rentals were in place in Toronto, but even now (late 2024) a number of municipalities in the GTA don’t have things set in stone. Whitby, Pickering, Aurora and Newmarket are still working on the regulations, and as such it hosts are really only concerned about following local zoning, property standards, and tax requirements.
The initial rules in Toronto had a Municipal Accommodation Tax (MAT) that was set at 4%. This tax applies to short-term rentals and supports city tourism and infrastructure. Registration fees for owners were a very reasonable $55.
In 2023, Toronto raised the MAT to 6%, ensuring short-term rental operators remit this amount quarterly. To simplify compliance, Airbnb and similar platforms began to offer a remittance option on behalf of hosts.
Beginning in 2025, registration fees are set to increase drastically from around $55 to $375, highlighting a stricter stance against non-compliant operators.
No Investors Allowed
As municipalities created the regulations for short-term rentals, most decided that such rentals would only be permitted in a homeowner’s primary residence. If you were an investor and didn’t live in a home, you could rent it out long-term (more than 28 consecutive days) but short-term rentals were no longer permitted.
This was done due to concerns about housing shortages, as the proliferation of short-term rentals in residential units had begun impacting the long-term rental market.
As of November, 2024, this is the case in Toronto, Mississauga, Oshawa, Oakville and Burlington. Basically, if the municipality has developed regulations, the rule is short-term rentals are only allowed if it is your primary residence.
Wait, what’s that about HST?
In addition to the registration fee and the Municipal Accommodation tax, owners of short-term rentals also need to be aware of HST obligations.
Airbnb rental income becomes subject to the HST if the rentals are for less than 30 consecutive days (one month) and the rent charged is more than $20 a day. Given the cost of stays in Ontario, almost all Airbnb properties charge more than $20 a day, so if you a host is doing significant levels of bookings, HST is charged on the stay, and due to the government. This is in contrast to long-term residential rentals, which are exempt from HST.
While charging and remitting HST can be either neutral or slightly beneficial (as you can claim input tax credits on costs incurred in renting the unit), a much bigger problem exists when the owner of an Airbnb property decides to sell.
In October, 2024, the Tax Court of Canada ruled on a case and held that the sale of a used residential property rented out on Airbnb is subject to HST on the entire sale price. A reminder that resale residential properties (i.e. not a new build where you’re the first buyer) in Ontario don’t have any HST charged on the sale. This is the case even if the property was an income property and rented out on long-term basis – but not if it is being used for short-term rentals.
In the ruling that came down, the judge ruled that at the time the owners sold the property, it was not a tax-exempt residential complex, since for tax purposes it was similar to a hotel, motel, inn, boarding house or lodging house. All of the condominium leases for the 14 months before the sale were for periods of continuous possession of less than 60 days, i.e, short-term rentals.
As a result of the “commercial rental operation” during that time, the entire sale price of the condominium was not exempt from HST. This means that if you own and operate a property as a short-term rental, you can expect that the CRA will treat the sale of that property as one that should charge and remit HST. The exact amount of HST owing would require a tax specialist to determine, but it is obviously significant dollars given the 13% HST rate.
If the seller doesn’t realize that HST should be charged, and doesn’t include wording in their Agreement of Purchase and Sale related to the sale price being plus HST (rather than inclusive of HST), they will be out of pocket for the HST that should have been charged. Even if the seller knows this may happen, they face a situation where their property becomes extremely unappealing to buyers who will have to pay HST on the purchase, compared to another property they could buy that wasn’t used for short-term rentals and therefore doesn’t have HST charged on the sale.
In short, the disposition of properties that were used for short-term rentals may result in a significant loss of equity in the home due simply to the HST component that has to be made up for – either by the seller directly to the government, or by the buyer who would demand a reduction in the purchase price.
When an Airbnb host has to pay a registration fee, charge a municipal accommodation tax and charge HST, it is no wonder that the days when Airbnb was a cheaper option than hotels are gone. As prices rise for guests, it seems logical that occupancy levels would be lower and that owners will make less revenue on the unit.
Add in the significant tax hit at the sale of the property and there is a very real question as to whether Airbnbs or other short-term rental options are still financially viable. Long-term rentals may bring in less revenue on the surface, but with significantly lower costs to manage and operate and no HST issues upon selling, the equation has shifted considerably.
If you are considering how to best benefit from a property that you own that you don’t live in full-time, then we’d love to walk you though the options. Get in touch with us and we’ll start the ball rolling!
