When an Airbnb Listing Turns a "Residential" Condo into a GST Trap: 1351231 Ontario Inc. v. The King (2025 FCA 53)
The Federal Court of Appeal's decision confirms that selling a property previously used for short-term rentals can trigger GST/HST liability, even if it was once a long-term residential rental. A critical reminder for real estate investors and small corporations engaged in Airbnb or short-term leasing.
GST Compliance Alert
Converting your residential condo to an Airbnb rental can trigger unexpected GST registration and compliance obligations. Understanding these requirements is crucial to avoid penalties and ensure proper compliance.
Overview
The Federal Court of Appeal's decision in 1351231 Ontario Inc. v. The King (2025 FCA 53) confirms that selling a property previously used for short-term rentals (Airbnb-style) can trigger GST/HST liability, even if it was once a long-term residential rental.
This case is a critical reminder for real estate investors and small corporations engaged in Airbnb or short-term leasing.
Key Facts
- The taxpayer corporation owned a condominium rented long-term from 2008 to 2017.
- In 2017, it shifted to short-term Airbnb rentals for about a year.
- The unit was sold in 2018 without GST/HST on the sale price.
- The CRA assessed about $77,000 in GST/HST, arguing the condo no longer qualified as a "residential complex."
Legal Issues
The case raised several key questions under the Excise Tax Act (ETA):
i. Was the sale taxable or exempt?
Generally, sales of used residential property are exempt from GST/HST, unless the property operates like a hotel or similar short-term accommodation where most rentals are under 60 days.
ii. Did the condo fall into that short-term rental carve-out?
The court examined whether, at the time of sale, the unit's Airbnb-style use meant it no longer qualified as a "residential complex."
iii. Was there a change in use triggering a deemed supply?
When a property shifts from residential to commercial use, the ETA deems a supply to occur. The taxpayer argued the short-term rental period was minimal and should not trigger this rule.
iv. Did the Tax Court apply these rules correctly?
On appeal, the Federal Court of Appeal considered whether the Tax Court erred in interpreting the ETA provisions on residential complexes, change in use, and exemptions.
Let me explain how the courts approached these.
Residential vs Commercial
Understanding when a residential property becomes commercial for GST purposes is crucial for compliance.
GST Registration Trigger
Short-term rental income may trigger mandatory GST registration requirements.
Condo Corporation Impact
Airbnb listings can affect the entire condo corporation's GST status and obligations.
Input Tax Credits
Understand what expenses qualify for input tax credits in short-term rental operations.
Court Findings
Tax Court of Canada (2024 TCC 37) held that:
- The condo's use as short-term rental meant it resembled a hotel.
- Therefore, it fell under the carve-out from "residential complex" status.
- The sale was a taxable supply subject to GST/HST.
Federal Court of Appeal (2025 FCA 53) upheld that ruling, and:
- Confirmed that the Tax Court did not make a reviewable error in its interpretation and findings. The FCA affirmed that the property satisfied the carve-out, and that the deemed supply under section 206 was correctly triggered.
- Confirmed that short-term rental use immediately before sale changes the property's tax status.
- Rejected the taxpayer's arguments on the carve-out and the application of section 197, finding they did not show a palpable or overriding error in the Tax Court's approach.
Thus, the FCA solidified the Tax Court's decision, making it binding precedent (subject to further appeal) on the question of GST/HST in analogous cases.
Why It Matters
This case sets a clear precedent: A property used for short-term rentals loses its GST/HST-exempt residential status at sale.
Implications for taxpayers:
- Selling a short-term rental unit may attract full GST/HST.
- Even a temporary Airbnb period before sale can trigger liability.
- CRA can assess back taxes and penalties if GST/HST is not remitted.
Tax Planning Tips
| Tip | Why It Matters |
|---|---|
| Keep leases 60+ days to maintain "residential complex" status | Long-term use = GST/HST-exempt sale |
| Avoid short-term use close to sale | Short-term activity = taxable sale |
| Keep lease and usage records | Vital evidence in CRA audits |
| Consult a tax lawyer before sale | Prevent costly GST/HST surprises |
Final Thoughts
1351231 Ontario Inc. v. The King reinforces that Airbnb use transforms residential property into commercial real estate for GST/HST purposes. Before selling or converting a property, seek professional advice to manage exposure and plan effectively.
Need Tax Law Advice on Airbnb or Short-Term Rentals?
Contact Mr. Nasar Iqbal, Tax Lawyer for expert guidance on GST/HST, CRA assessments, and real estate tax planning. Don't let GST compliance issues derail your real estate investment strategy.
Professional Guidance Recommended
The GST implications of short-term rentals can be complex and fact-specific. Professional advice is essential to ensure compliance and avoid unexpected tax liabilities.