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!

The meaning of the idiom “a level playing field” is a situation that is fair to everyone, where everyone gets the same opportunity and a situation where everyone has an equal and fair chance of succeeding.  It apparently originated in the late 1900s when then was unfair advantage given to one team in a field game if there was a slope on the field.

While providing a level playing field is supposed to mean a fair competition, where no advantage is shown to one side, it is regularly used now in situations where we’re tilting the odds in favour of one side of a situation.

The Ontario government made an announcement on October 25, 2022 about amendments to the Non-Resident Speculation tax and immediately we saw a number of pundits talking about how this is levelling the playing field in real estate.  It’s a funny reaction to one group having an increased, additional tax on real estate purchases that other groups don’t incur when they buy.  If you’re a non-resident looking to buy in Ontario, it likely felt like the playing field just tilted in favour of residents, not towards a more level field.

As of October 25, 2022, the NRST rate in Ontario will be increased from 20% to 25% and continues to apply to all parts of the province. The NRST applies to the transfer of “designated land”, which is considered land that contains at least one and no more than six single family residences.

Back in March, the government raised the NRST from 15% to 20%. The new increase to 25% makes this the highest provincial tax in Canada that exists to deter foreign speculation in the housing market.

We ran the numbers of the costs to buy in Ontario if you’re a resident or a non-resident and thought we’d share it here.  There are a few different taxes that could apply depending on the type of property, the location of the property, the history of the purchaser and where the purchaser resides, so it can get a bit complicated.  We explain how it works and run the numbers for the different situations so it’s clear.  Well, clearer.

As of September, 2022, the average price for a property in Ontario is approximately $836,000.  We’ll use that as our proxy for our various calculations on the purchase.

There are four possible taxes that can be incurred when you buy residential real estate in Ontario.  Let’s review.

Buyer Tax #1 Provincial Land Transfer Tax

The first tax applies to ALL residential purchases in Ontario and is the Provincial Land Transfer Tax.

The tax is calculated on a sliding scale based on the purchase price, and for single family residences, there are thresholds at $55,000, $250,000 and $400,000.

There is a first-time home buyer’s refund of up to $4,000 on this tax that can be claimed once.  While there is a scale for this refund as well, if the home being purchased is over $368,000, then the maximum refund of $4,000 will be available.

You can find a LTT calculator here on the Toronto Regional Real Estate Board site.

Based on the September, 2022 average price for a property in Ontario of $836,300, the Provincial Land Transfer Tax payable by all purchasers is $13,201.  If you’re a first-time home buyer who has never owned real estate before, that will be reduced by $4,000 to $9,201.

Buyer Tax #2 Toronto Land Transfer Tax

The second possible tax on residential purchases in Ontario is the Toronto Land Transfer Tax.

It is just like the Provincial Land Transfer Tax but is paid to the City of Toronto for purchases that take place within the municipal boundaries of Toronto.  It is in addition to the Provincial Land Transfer Tax and is calculated exactly the same way, with the same tax payable.  Put simply, whatever you pay for the Provincial Land Transfer Tax, you will pay the same amount again to the City of Toronto if you are buying within the Toronto boundaries.

If you are a first-time home buyer, you can also receive a refund from the City of Toronto to be applied against the Toronto Land Transfer Tax.  The amount for the City of Toronto LTT refund is slightly higher than the Ontario LTT first-time buyer refund.  In Toronto, you can receive a refund of up to $4,475 against the Toronto LTT.

Based on the September, 2022 average price for a property in Ontario of $836,300, the Toronto Land Transfer Tax payable by all purchasers who buy within the municipal boundaries is $13,201.  If you’re a first-time home buyer who has never owned real estate before, that will be reduced by $4,475 to $8,726.

Buyer Tax #3 Harmonized Sales Tax

The third possible tax on residential purchases in Ontario is the Harmonized Sales Tax, or HST.

HST can be charged on residential purchases if it is a new or mostly new (over 90% new construction) home in Ontario.  While the HST calculation is straight-forward (13% of the purchase price is added to the cost of buying it), there are a few rebates that make it significantly more complex.

The HST New Housing Rebate is comprised of a federal rebate is equal to 36% of the federal portion of GST/HST, to a maximum of $6,300 and the Ontario provincial rebate, which is equal to 75% of the Ontario portion of GST/HST, to a maximum of $24,000.

Qualifying for the rebate can be challenging and depends on a number of factors such as type of property purchased, intended use (primary residence or investment use) and more.

If you are purchasing a new build in Ontario, always consult with your real estate lawyer to determine the tax consequences of your purchase and whether you qualify for any rebates.

For our purposes here, a home of over $450,000 will not receive a rebate on the federal portion (5%) and given the average price in Ontario is $836,300, that means that the $41,815 of federal HST tax will be an additional cost on the new build purchase.

The $66,904 (8% of $836,900) Ontario HST component may qualify for a rebate of up to $24,000, meaning that any new build will incur an Ontario HST that nets out to an additional $42,904 on the purchase.

If you are buying for investment purposes, you may be able to qualify for a New Residential Rental Property Rebate.  Just like with the HST New Housing Rebate, this rental property rebate will not apply on the federal component of the HST as our purchase price of $836,300 is over the maximum purchase price of $450,000.

The provincial component of the HST may qualify for a rebate of 75% of the HST paid, up to a maximum rebate of $24,000 per qualifying rental unit.  It is possible for both residents and non-residents to qualify for this, so based on our price of $836,300, that means we hit the maximum of $24,000 for this rebate.

When we put it all together, based on the September, 2022 average price for a property in Ontario of $836,300, the net HST you will pay on top of that price, if that property is a new build, is $42,904 in HST.  If you’re a non-resident, you would have to be renting the property out for a minimum of a year to qualify for the $24,000 rebate on the provincial portion, otherwise you’d have to add that on top of the $42,904.  Given that such a buyer is a non-resident, we will assume they are buying it as an investment and will rent it out, thus receiving the $24,000 rebate just like a resident buyer.

Buyer Tax #4 Non-Resident Speculation Tax

The fourth possible tax on residential purchases in Ontario is the Non-Resident Speculation Tax, or NRST.

The Non-Resident Speculation tax (NRST) is often colloquially called the Foreign Buyer’s Tax, so don’t be confused and think they are two separate things.  In Ontario, we call it the NRST and in British Columbia it’s known as the Foreign Buyer’s Tax, but in either case it’s a tax on non-residents.

As of October 25, 2022, the NRST in Ontario is a straight-forward 25% of the purchase price.  If you aren’t a Canadian citizen, a Permanent Resident or a Protected Person, you owe an additional 25% of the purchase price.  It applies to the transfer of “designated land”, which is considered land that contains at least one and no more than six single family residences.

Based on the September, 2022 average price for a property in Ontario of $836,300, the NRST payable by all non-resident purchasers is a whopping $209,075.

So, how level is that field now?

When we look at the four possible taxes on the average purchase price for a single-family residential property in Ontario, we see that the field is in fact clearly tilted in favour of residents versus foreign buyers.

While there are four possible taxes, the only one that doesn’t treat residents and non-residents equally is (naturally) the Non-Resident Speculation Tax (NRST).  On the average purchase of a property in Ontario of about $836,000, a foreign buyer will need to have $1,058,000 available to cover the closing costs for the home.  That’s an extra $222,000, comprised of the NRST and the Land Transfer Tax.

If the foreign buyer is interested in buying a new home and renting it out to a tenant, they will need to be prepared to add another $43,000 for the HST tax on the property.  If they want to buy that new home in Toronto, then the Toronto Land Transfer Tax adds another $13K onto the funds required.

When all is said and done, if a non-resident decides to buy a new construction property in Toronto and they’re lucky to find one at the average Ontario price of $836,000, they’re looking at over 33% in taxes on top of their purchase price.  When you add that $278,000 to the base purchase price, a non-resident  needs over $1.1M to buy that $836,000 home.

While not many people in the world would think Ontario real estate is a bargain, if you’re a non-resident considering buying in the province, the list price looks like a positive steal.    If you or someone you know is considering buying in Toronto or the surrounding areas, it pays to work with agents who understand the true cost of the deal.  Get in touch with us and we’ll help make sure it’s the right move.

If you own investment properties or are considering one, it’s worth understanding how such properties are treated when you sell them, whether in a short-time frame (a “flip”) or in a longer-time frame after renting it out to tenants for a length of time.

While primary residences in Ontario are exempt from capital gains (any increase in the value of the property since you bought it), non-primary residences are subject to capital gains tax.

What is this capital gains tax you speak of?

Put simply, capital gains tax is a tax you pay to the government when you make a profit by selling something for more than you originally paid.  This applies to all sorts of assets, including stocks, bonds and of particular interest to us, real estate investments.

How is the capital gain calculated?

The good news is that determining your capital gain on an income property is pretty straight forward.  You just take the sale price of the property, and you subtract your adjusted cost base (ACB) and you have your capital gain.  This of course leads to the next question, what’s an “adjusted cost base”?

Here’s what goes into your adjusted cost base.

You can think of your “adjusted cost base cost” (ACB) as what you paid for the property when you bought it, plus the costs of any improvements you made to the property, plus whatever it costs to sell the property.  You can’t add in all your costs (such as a property manager, property taxes and other ongoing costs), but anything you did to improve the property should be recorded separately so you can add it into your ACB.

While using a professional realtor to sell the home helps you get the most amount of money on the sale, the commissions paid on the sale can be significant.  The good news is that those sale transaction costs (also including legal fees, bank fees and so forth) are added to your adjusted cost base.

Here’s an example of how it all works.

Let’s go through an example of figuring out your capital gain on an income property.

Here’s the key aspects:

• In July, 2011, you inherited some money and decided to invest in real estate in Toronto. You bought a semi-detached house for just about the average price for one back then, $502,000.
• You had to pay both the Ontario and Toronto land transfer tax (introduced in 2008) and that cost you about $10,000 at that time.
• Over the years, you spent some significant money on some renovations to keep the house in good shape. You redid the roof, you bought a new furnace, updated the bathrooms, had it painted top to bottom a few times and you eventually had the carpet replaced with some hard wood flooring.  All in, you spent $82,000 on the home over the ten years you owned it.
• In 2021 you decide to take a year off work, and in July, 2021, you decided the time was right to sell the property. You hired a good agent and managed to get a bit above the average for a semi-detached in Toronto, selling for $1,220,000.
• You paid $61,000 in real estate commissions (5% of the sale price), $1,500 in legal fees and your lender charged a $500 fee for discharging the mortgage.

Take all of this into account and here’s what we see.

When all is said and done, you’re adjusted cost base for the property is $657,000.  When we take our sale price of $1,220,000 and subtract your ACB, your capital gain on the property is $536,000.

OK, got it.  Now I know my capital gain.  So..I have to pay that?

Nope.  You only pay tax on 50% of the capital gain you realize on your income property. This means that half of the profit you earned is taxed, but the other half is tax-free.  Here’s what that looks like if we continue the above example.

In this case, your taxable profit on the sale is $281,500, which would be added to your income and taxed by the CRA based on your personal circumstances.   Given you decided to sell in a year when you had no other income (as you were taking a year off work), your overall tax will be lower than if you did this during a year where you also had other income.

Make no mistake, selling an income property where it has appreciated significantly can result in pretty high taxes.  Take comfort in the fact that the other half of your capital gain on the property was tax-free.

Whether it is a long-term rental property or a short-term flip, the bigger the difference in your adjusted cost base and sale price, the more tax you pay.  The timing of the sale can have a huge impact on the overall profit you realize and you need to work with agents who understand income properties.  If that sounds appealing, don’t hesitate to get in touch!