Nine years of ordinary long-term tenants counted for nothing on closing day. What mattered was the use of the property at the moment title changed hands, and the bill for getting that wrong was $77,079.64. Here is the sequence, the reasoning at both levels of court, and what it changes for owners.
Key Takeaways
- A furnished residential unit let for stays of less than 60 days is treated like a hotel or motel.
- The test is applied on closing day, not averaged across your whole ownership.
- The switch happened on the first day of short-term listing, well over a year before closing.
- Buying used housing brings no credit on the way in, yet the tax still lands on the way out.
- The appeal was dismissed from the bench in March 2025, so the point is now settled at the appellate level.
What Happened: Nine Years of Long-Term Tenants, Then Airbnb
The owner was a numbered Ontario corporation held equally by two brothers. It was registered for GST purposes and filed annually, with a reporting period ending May 31.
On February 29, 2008 the company purchased a used condominium unit located in Ottawa as an investment. The company made the purchase for long-term residential rentals, and then listed the unit on a nightly platform nine years later. For the first nine years it rented out the property through a series of tenancies, each lease comfortably longer than 60 days. That long-term rental income was exempt, so no GST/HST was charged on it and none was recoverable on costs.
Through that period the appellant used a condo unit owned by a numbered company, not owned by an individual. What changed was not the building. It was the arrangement under which it was supplied.
On February 25, 2017 the company listed it on Airbnb and rented it by the night under a series of short-term leases. Gross revenue from those bookings was $11,200 in 2017 and $43,179 in 2018. The property was supplied by way of taxable short-term leases for 366 days, running from that first listing to the end of a 31-night stay on February 26, 2018.
The company listed the condominium for sale on December 12, 2017, signed an agreement of purchase and sale with an arm’s-length buyer on January 24, 2018, and closed on April 11, 2018. Neither side remitted anything on the sale of the property. The CRA later assessed the company $77,079.64 as tax collectible on the sale, which works out to Ontario’s 13% rate on consideration of roughly $593,000.
How the Residential Complex Definition Works
Selling used housing is normally exempt. Section 2 of Part I of Schedule V to the Excise Tax Act (ETA) covers the sale of a used residential complex by a seller who is not a builder and who did not claim input tax credits on the last acquisition or on an improvement. The company was not a builder, and the parties agreed the credits it had recovered on furniture and painting were not improvements.
So everything came down to the definition of a residential complex. Subsection 123(1) of the ETA sets it out, and it ends with a carve-out. Property is excluded where it is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises, and where “all or substantially all of the leases, licences or similar arrangements” provide, or are expected to provide, for “periods of continuous possession or use of less than 60 days”.
Both limbs had to be met. The company argued neither was.
Two features of this unit are worth separating out. It was a residential condominium unit, but a numbered company held it rather than an individual living in it. And its actual pattern had flipped: used primarily as a place of residence for nine years, then used primarily for short-term rentals from February 2017 onward.
The Deemed Sale Rule in Subsection 206(2)
Short-term accommodation is a commercial activity. Renting on long leases is not. Moving from one to the other triggers the change-in-use rules for real property contained in subsection 206(2) of the ETA. A registrant who begins to use that capital property in its commercial activities is deemed to have received a supply of the property by way of sale at that moment.
Section 197 provides a safety valve, switching off those rules where the change in use is 10% or less. It gave no help here. On February 25, 2017 the shift was 100%, measured from the day the unit was acquired, so the deemed sale took effect on that date.
There is an asymmetry worth noticing. Subsection 206(2) normally hands the owner a credit based on the basic tax content of the property. Because this was a used condominium bought without GST, the amount applicable to the property was zero, so nothing came back. The regime gave nothing on the way in and took 13% on the way out.
What the Tax Court of Canada Decided in 2024 TCC 37
The issue before the Court was whether the sale of the condominium unit stayed exempt. Justice D’Arcy dismissed the appeal on March 15, 2024 in 1351231 Ontario Inc. v. The King, 2024 TCC 37. His reasoning ran in two parts.
On the first limb, he held that a furnished unit rented by the night, with heat, air conditioning, electricity and Wi-Fi included, is similar premises to the listed accommodation types. The Tax Court determined that the appellant was supplying accommodations to third parties on terms similar to a hotel, for a fee, in rooms that are normally furnished. The argument that a hotel must serve food failed, since the Court found no evidence that all hotels have restaurants.
On timing, he rejected the idea that the test looks across the entire ownership period. GST/HST is a value-added tax levied on individual supplies, and the character of each supply is determined when it is made. On April 11, 2018 the only arrangements in place were short stays, so the carve-out applied and the sale was a taxable supply.
Read together, the Court concluded that the appellant had converted the unit and that the sale was not an exempt supply. The Court held that the change-in-use rules bit on February 25, 2017, not on closing.
The Federal Court of Appeal agreed and said so briefly. On March 4, 2025 a panel of Woods, Roussel and Heckman JJ.A. ruled from the bench in 2025 FCA 53, finding no reviewable error and dismissing the appeal with costs.
What the CRA Can Reassess When You Sell a Short-Term Rental
The assessment covered a single annual reporting period, June 1, 2017 to May 31, 2018, and the notice issued on January 14, 2019. Under the ETA the Minister generally has four years from the later of the filing due date and the actual filing date to reassess a period, and that window opens further where there has been misrepresentation attributable to neglect, carelessness or wilful default. Records supporting the sale therefore need to survive well past closing.
One more practical wrinkle. Liability to remit falls on the seller, but on a commercial property sale the obligation can shift to a purchaser who is itself registered, in which case the buyer self-assesses instead. That makes the buyer’s registration status worth pinning down in the agreement itself. Where an assessment has already issued, our CRA representation team works from those same records.
What This Means If You List a Condo on Airbnb
The ruling does not touch the rents you have already reported. It changes the arithmetic of the exit, and property owners rarely price that in.
The practical read is simple. A residential unit let on 12-month terms is housing. The same condominium marketed by the night, on a run of short-term leases, sits closer to a motel in the eyes of the ETA.
A worked comparison. Two owners each sell a $700,000 unit. Sofia rented hers on 12-month tenancies until the day she listed it for sale, so the sale carries no tax and she nets the full price. Marc moved his to nightly bookings for the last year, earning perhaps $40,000 more in rent. On closing, 13% applies to his sale, which is $91,000 of tax against $40,000 of extra revenue. The short-term income has to be very large, for very long, to fund that.
In our practice, the version of this we see most often is not a deliberate hotel operation at all. It is an owner-manager who cannot find a tenant, tries nightly bookings for a season to cover the mortgage, and then sells. The intent was temporary. The characterization at closing is not.
Three decisions follow from that:
- Decide the exit before you list, because the deemed sale lands the day you start.
- If you are already listed and plan to sell, get advice on whether returning to genuine long-term tenancies before closing restores the exemption on your facts.
- Price the tax into any offer, and confirm in writing who is responsible for it.
If the unit sits inside a corporation, the same transaction also drives your corporate return and the timing of any distribution, which is where our corporate tax advisory work usually starts. Owners weighing structure before they buy will find the trade-offs in our guide to buying property under a corporation, and our page for real estate investors covers the wider file.
Frequently Asked Questions
Does renting on Airbnb make my condo sale subject to GST/HST?
It can. If the unit is being supplied under short stays at the moment you sell, it falls outside the residential complex definition and the usual relief for used housing does not apply. Both the Tax Court of Canada and the appellate court confirmed that result on these facts.
Why does the CRA consider an Airbnb listing commercial?
Because nightly accommodation is not exempt residential rent. Renting to a stream of guests for periods under 60 days puts the unit in the same category as a motel or lodging house, which is commercial activity for GST/HST purposes.
Is the sale of a Canadian real property subject to GST/HST?
Often, yes. A commercial building sells with tax, while selling a condo that still counts as used housing carries no tax. Which category you land in depends on how the unit was supplied in the period before closing.
Does the 60-day threshold mean monthly stays are safe?
A stay that exceeded 60 days is not caught by the carve-out, and the last booking in this case ran 31 nights. The test looks at all or substantially all of the arrangements in place, so a single longer booking among many short ones will not change the character of the unit.
How do the deemed-sale rules apply to residential properties?
They deem a sale the moment you start using real property in a commercial activity, and a second one when you stop. Section 197 ignores movements of 10% or less. A full switch to nightly bookings is not a small movement.
What counts as a residential complex under the Excise Tax Act?
Broadly, a building or part of one serving as a home, together with the land that goes with it. The definition drops out hotel-style premises where substantially all of the leases run under 60 days, which is exactly what caught this owner.
What if I rented long-term for nine years first?
That history does not protect the sale. The Court held that the character of a supply is fixed when the supply is made, so nine years of long-term tenancies followed by 366 days of nightly bookings still produced a fully assessable sale.
Can I switch back to long-term tenants before selling?
Returning to genuine long-term tenancies reverses the switch and can restore the residential complex character. What governs is the arrangement actually in place at the time of sale, not your intention, so confirm this well before closing.
How can owners protect the exemption when leasing?
Keep the leases long. Document each tenancy, keep the terms above 60 days, and avoid mixing nightly bookings into the year you intend to sell. The paperwork in place at closing is what an auditor will read.
Do I have to register for GST/HST to rent short-term?
Short stays are not exempt, so that revenue counts toward the $30,000 small supplier threshold measured over four consecutive calendar quarters. Since July 1, 2021, booking platforms have generally collected the tax themselves where the host is not registered. Our guide to GST and HST for small business covers when registration becomes mandatory.
The Bottom Line
This is a timing lesson dressed up as a definition case. The sale of a condominium unit turns on the paperwork in force that week, not on the years before it.
- Nightly bookings convert housing into commercial accommodation for GST/HST purposes.
- The status of the property at closing decides the outcome, not its history.
- Used housing bought without tax generates no offsetting credit on conversion.
- The appellate court settled the point in March 2025, so the argument is closed.
Whether your own exit attracts tax turns on the leases in place at closing, what you claimed along the way, and how the unit is held. Those variables move the answer by tens of thousands of dollars, so talk to us before you sign, not after.
