Noah Patel
The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are consumption taxes levied on the supply of most goods and services in Canada. In Ontario, the rules governing rental properties are unique and nuanced. Generally, GST/HST exemptions apply to residential rentals, which are those that exist for longer than one month. However, GST/HST may apply to short-term rentals, and even some long-term rentals under certain conditions. It's important to understand the GST/HST implications for rental properties in Ontario, as they can impact tax liability and the requirement to collect and remit taxes.
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What You'll Learn
GST/HST registration
In Ontario, the HST rate is 13%, which combines the federal GST and the provincial sales tax. Registration for HST is mandatory for businesses that sell taxable goods or services and cross the $30,000 revenue threshold over four consecutive calendar quarters. This threshold serves as a critical indicator for businesses to initiate the registration process.
The registration process is straightforward and can be completed online through the Canada Revenue Agency's (CRA) Business Registration Online (BRO) system. This platform is accessible 24/7, and businesses can obtain their Ontario GST/HST number instantly upon completing the application. Additionally, businesses can opt to visit their local CRA office and complete the registration form in person. It is important to carefully review and understand the questions on the form before submission, as certain information can be challenging to change afterward.
Once registered, businesses are required to charge GST/HST on their taxable supplies. This includes ensuring transparent invoicing practices, clearly indicating the amount of GST/HST charged. Proper invoicing helps customers understand the taxes applied and facilitates accurate record-keeping. Additionally, registered businesses must file GST/HST returns for each reporting period, with electronic filing becoming mandatory for most registrants from January 1, 2024.
It is worth noting that GST/HST registration is not limited to businesses selling goods. It also applies to rental properties, particularly those offering short-term or vacation rentals. In such cases, the owner is considered to be providing a taxable supply and must charge GST/HST accordingly. On the other hand, residential rentals that last longer than one month are generally exempt from GST/HST.
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GST/HST rebates
In Ontario, Canada, residential rentals are GST/HST-exempt if they are for longer than one month. In this case, you don't charge GST/HST on the rental income to your tenants, and you also can't claim ITCs (input tax credits) on your purchases. However, if your rental income is GST/HST taxable, you may need to register, collect, and remit the GST/HST and file the GST/HST returns.
Vacation rentals are treated differently for GST/HST purposes. If you own a vacation rental, you are considered to be providing a taxable supply, so you must charge GST/HST on all the services you provide. On the other hand, you can claim GST/HST on all of your purchases.
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GST/HST on short-term rentals
In Canada, GST/HST does not apply to long-term residential rentals. This means landlords are not required to charge or collect GST/HST on rent collected from tenants. However, landlords cannot claim Input Tax Credits (ITCs) for GST/HST paid on expenses related to the long-term rental property.
On the other hand, short-term rental unit owners must become GST/HST registrants, unless they qualify as small suppliers. They must collect and remit GST/HST to the Canada Revenue Agency (CRA). A short-term rental unit owner is not required to register for GST/HST purposes but may voluntarily do so if their gross rental revenue from short-term rental units does not exceed $30,000 in the last four consecutive calendar quarters or in any single calendar quarter.
Short-term rental property owners may also be subject to additional provincial or municipal taxes. For example, a non-resident vendor who owns a cottage in Ontario and is not registered for GST/HST purposes rents out the cottage to consumers on a weekly basis during the summer months. The supply of short-term accommodation is made in Ontario because the property is situated in Ontario. The accommodation platform operator is required to charge and collect HST at 13% on the supply of accommodation and any booking or administration fees.
The definition of short-term rentals varies depending on the source. One source defines it as rentals that last less than one month and cost more than $20 per night. Another source mentions that a condominium unit listed on Airbnb and rented exclusively under short-term leases of less than 60 days was considered similar to a hotel or motel and thus did not qualify as a "residential complex," making the sale of the unit subject to GST/HST.
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GST/HST on long-term rentals
In Ontario, Canada, the rules surrounding GST/HST on rental properties can be complex and unique. Generally, GST/HST does not apply to long-term rentals, which are defined as rentals for longer than one month. However, there are certain exceptions and specific scenarios where GST/HST may come into play.
For residential rentals, landlords are not required to charge GST/HST on the rental income from tenants, and they cannot claim Input Tax Credits (ITCs) on their purchases. However, if a landlord's rental income exceeds a certain threshold, they may need to register for a GST/HST account and comply with additional tax requirements. In Canada, this threshold is typically $30,000 in annual rental income.
Vacation rentals and short-term rentals are treated differently. If you own a vacation rental or short-term rental property, you are considered to be providing a taxable supply. As a result, you must charge GST/HST on the services you provide and can claim GST/HST on your purchases. It's important to note that the definition of "short-term" can vary, but it generally refers to rentals of less than 30 consecutive days.
Additionally, certain types of rental properties may qualify for GST/HST rebates. For example, landlords who buy or build new residential housing, substantially renovate existing housing, or convert commercial properties into housing may be eligible for a GST/HST new residential rental property rebate. This rebate is designed to encourage the creation and improvement of long-term rental housing for individuals as their primary place of residence.
It's worth noting that the GST/HST implications can be nuanced and depend on various factors, such as the type of rental property, its location, and the landlord's specific circumstances. Therefore, it is always recommended to consult with an experienced Canadian tax lawyer or accountant to ensure compliance with the applicable tax laws and to maximize any potential rebates or exemptions.
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GST/HST on vacation rentals
In Ontario, Canada, the purchase of a vacation property is taxable if the property was used primarily to make taxable short-term rentals. Taxable short-term accommodation refers to the rental of an accommodation unit in Canada as a place of lodging for an individual who will occupy it continuously for a period of less than one month and that costs more than $20 per night.
If you are an individual making short-term rentals of a vacation property, you are required to charge and collect GST/HST on the rentals if the rent charged is more than $20 per day. You can choose to become a GST/HST registrant with the Canada Revenue Agency (CRA) and claim back all or part of the GST/HST paid on the purchase as an input tax credit (ITC). The proportion of GST/HST that is recoverable is based on the expected proportion of taxable short-term rental use. When that use exceeds 90%, all of the GST/HST can be recovered.
If you are a small supplier (a person who generates less than $30,000 in GST/HST-taxable revenues annually), you need not register for GST/HST, although the rental pool arrangements sometimes require them to do so. Property operators will typically charge, collect, and submit GST/HST to CRA on room rentals on your behalf.
It is important to note that there is a difference between residential and commercial rentals. Residential rentals refer to those that exist for longer than one month, and GST/HST is not charged on the rental income. On the other hand, commercial rentals are taxable, and GST/HST is charged on the services provided.
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Frequently asked questions
Generally, most short-term rentals (i.e. rentals for less than 30 consecutive days) are subject to GST/HST. However, long-term rentals are generally not subject to GST/HST.
Short-term rentals are defined as rentals for less than 30 consecutive days, while long-term rentals refer to rentals for more than one month.
Yes, even some long-term rentals can be taxable if the rental is of a 'hotel-type' property. Additionally, certain types of rental income, such as vacation rentals, may be considered taxable supplies, requiring you to charge GST/HST on all services provided.
To register for a GST/HST account for rental income in Ontario, you can visit canada.ca/business-registration online or contact the relevant authorities within 30 days of receiving a notice.
Ontario offers a rebate of 75% of the provincial portion of HST, with a cap of $24,000. The rebate applies to properties where the fair market value of the qualifying residential unit is less than $450,000 at the time the tax was payable.
