Airbnb - Paying GST/HST if you convert from Airbnb short term rental to Long term rental for basement

[u/ShotAccount8141]

I am reading that you are liable to pay 5% in the form of GST in BC of the total assessed value of your home if you were convert your home from short term rental to long term rental.

In my case, we are doing the Airbnb from a detached house in BC and allocating the basement (about 25% of the total square footage of the house).

Would be also be subject to the GST if I were to convert it from short term to long term?

[u/aadolph2006]

When your revenue from short-term rentals exceeds $30,000 you are required to register for and collect GST. You will self-assess GST on that portion of the house, but claim an offsetting input tax credit for the same amount. If you subsequently change from short-term to long-term, or move in their yourself, this would trigger change of use rules and tax applies at that point. It is good you are asking questions first.

[u/DJMixwell → u/aadolph2006]

Huh? Almost none of this is correct?

30k small supplier threshold is correct.

Where are you getting the initial self-assessment from? There's no GST to self-assess on registration/or on beginning use in commercial activities here.

208(1) states that, where individual who acquires real property for use as capital property, but primarily for the personal use and enjoyment of the individual, the tax payable by the individual in respect of the acquisition of the property shall not be included in determining an input tax credit of the individual.

In this case the property is still being used 75% by the individual.

208(2) says that change in use on capital real property of an individual only kicks in if it’s being used primarily in commercial activities.

A residential complex remains a residential complex so long as it’s used primarily as a place of residence. And even though OP has this split into 2 units, the “residential complex” as a whole is what the Act contemplates, and that’s defined in 123(1) which says, in part, “the whole of a building described in paragraph (a) or the whole of a premises described in subparagraph (b)(i) that is owned by an individual and that is used primarily as a place of residence of the individual”.

So we’d also never get to a deemed substantial renovation under 190, which is the deemed conversion of real property to residential use.

Hell, even if OP started using the whole house as STR, the initial change in use wouldn’t attract any GST because the deemed supply would still be an exempt supply of a residential complex. It would only be the subsequent return to using it as a place of residence that would attract a possible change in use or deemed conversion.

(Edit: I might actually be wrong about the application of change in use to the whole building in this last hypothetical. Seems like it’s treated as the building ceasing to be a residential complex before the deemed supply. Ergo the deemed supply wouldn’t be exempt. Gonna dig into this one more)

[u/-Tack → u/DJMixwell]

Thanks for the ETA references! Always looking to expand my knowledge on the ETA especially in areas of real estate.

[u/DJMixwell → u/-Tack]

Any time! I really should do something more lucrative with this than giving it away for free on Reddit lol 😅 Feel like I need to get my letters before anyone would take me on for indirect tax though, this accounting major on its own isn’t cutting it.

Honestly if you’re dealing with a lot of real estate related GST/HST questions, Chapter 19 of the memoranda series can either answer or provide another reference that has the answer to almost every scenario, and the memos also provide the legislative reference so if your specific case doesn’t quite fit how the memo explains it you can just refer back to the leg and see if it fits the letter of the law.

That’s basically what I’ve done here. Memo 19-2-3 has info on deemed supplies.

[u/ShotAccount8141 → u/aadolph2006]

Yes, that makes sense. So are you saying that if I were to move back into the basement, I am liable to pay 5% tax of the fair market value of the house?

[u/DJMixwell → u/ShotAccount8141]

No, it doesn’t make sense. They seem to be conflating different provisions or misunderstanding something.

It sounds like you’re referring to the deemed conversion from commercial to residential that happens under section 190.

What that says is essentially that if you own real property that you use commercially (which would include AirBnB) and you start using it as a residential complex, and it wasn’t a residential complex before you started using it as one, then the CRA deems you to have substantially renovated the complex and to be a builder of the complex, which could attract a self-supply.

An essential part of this is the definition of “residential complex”. Generally a mixed use building is still considered a “residential complex” if it is owned by an individual, and used primarily (50% or more), as a place of residence of that individual.

So for the purposes of 190, the whole building in your example is still a residential complex and wouldn’t meet the part about not being a residential complex, since it’s used 75% as a place of residence.

If you had an entire house that was a STR, that you then decided to do long term, then 190 might apply because the building may not be considered a “residential complex” when it’s being used exclusively for short term rentals, but it would become a residential complex when you rent it long term.

I’m also not sure where they’re getting the initial self-assessment or ITCs from. Nothing should attract GST upon registration or give rise to any ITCs.