Airbnb Apocalypse Part II: The Reckoning

Over the last couple of months I’ve written several posts (Airbnb) (other non-residential use) about the non-intuitive changes in use from what would normally be residential use to commercial use and the severe tax consequences that follow. This recent tax court case on the sale of a condominium unit that was used substantially all for long term residential accommodations over nearly a decade of ownership demonstrates how easily one can incur tax liability without realizing it. The long and short of it, the sale was taxable and cost the seller $77,000 in HST plus what I would guess would be substantial legal fees ($1,000 an hour?) from a top tier Toronto tax firm.

The judge’s analysis of the tax status is impeccable. As this case was decided in the general procedure it is now the precedent and this is generally the fate for all sales of formerly Airbnb type short term accommodation properties across Canada that were used primarily in short term commercial activity.

This is a cautionary tale for all that supply their real property for short term accommodations. Knowing the tax implications is the best course of action before undertaking such a business but where that didn’t happen, the next best thing is to have a free consultation with a former CRA auditor, appeals or rulings officer who can advise on the probability of a successful appeal should you be assessed for tax owing on the sale or deemed sale of a short term accommodations property.

Remember, your ZheroTax pro will always make two offers (flat rate and contingency) and you choose the one that you’re most comfortable with. This is your assurance that the ZheroTax pro believes they will win your appeal and are willing to risk their fee on that bet. That’s unlikely to be an offer you will get anywhere else.