Short Term Accommodations Apocalypse in B.C.

How Selling Your Airbnb Property Might Get Taxed as a Commercial Property

british columbia tax apocalypse

In October 2023, the Province of British Columbia passed a law that comes into effect on May 1, 2024, that generally eliminates what are colloquially called “ghost hotels”, short term accommodation units that are usually rented on Internet platforms such as Airbnb and VRBO and are not the principal residence of the owner or a tenant. The owners generally have four choices when presented with this situation:

    1. Sell the unit
    2. Rent the unit long term to tenant
    3. Hold for personal use
    4. Leave unoccupied without personal use

    The first three choices may have immediate GST consequences:

    Selling the unit after a year of use in a short term accommodations business will generally be viewed by the CRA as the sale of a commercial property and tax is to be accounted for on the sale. This is generally the one that is least likely to incur penalties and interest because the realtors and lawyers involved understand that a tax liability is likely present.

    “Selling the unit after a year of use in a short term accommodations business will generally be viewed by the CRA as the sale of a commercial property”

    Renting the unit to long term tenants will usually be viewed by the CRA as a deemed sale (change in use) that requires tax to be calculated on the fair market value and accounted for in the person’s reporting period, with a required return filed, on or before the last day of the month following the month the deemed sale occurred. For example, May 1, deemed sale with rental to long term tenants, June 30, the tax must be accounted for in a GST60 form. Failure to report the sale on time will likely incur penalties and interest.

    Holding the unit for personal use. Similar to the provision that deems a sale for a unit used in the described way and then rented long term to be sold at fair market value, another provision deems that when an individual appropriates such a unit for personal use, that they have sold it at fair market value. They then have to account for the tax in the required reporting period.

    Finally, holding the unit but not appropriating it for personal use or exclusively for some other use generally has no immediate tax consequences but doesn’t change the ultimate tax status when the unit eventually get supplied or used in the first three ways, the tax status will apply at that time and the tax will have to be accounted for.

    The Excise Tax Act is complicated and the determination of the tax status being taxable is not a foregone conclusion if skillfully argued by a tax professional who understands the ins and outs of the law.

    So What Can I Do?

    If you have been running a short term accommodations business and are undertaking any of the first three options above, get in touch and ZheroTax pros will give you a free consultation on your options, including requesting a preemptive ruling request to get a binding ruling on the CRA that a sale or deemed sale is not taxable (it’s possible if you understand the way the law is to be interpreted).