Building new properties and maintaining rental properties are already expensive as it is, but factoring in GST and HST can make the process even more burdensome. The Canadian Revenue Agency does offer partial tax rebates for new construction and there may be tax credits available if the property is going to be used for short term rental purposes. Consider speaking to an experienced tax lawyer to ensure you are maximizing your tax benefits, especially if you are a commercial builder or landlord. Call Jeremy Scott Law at 902-403-7201 or contact us online with your GST/HST questions, and allow us to provide practical and helpful tax advice.
When Does the GST/HST Apply to Residential Rental Properties?
If you are in the business of renting properties, there will probably be sales tax implications.
Purchasing Rental Property
For many landlords, the rental process begins with purchasing a rental property from a builder. When a property owner purchases a new construction or substantially renovated residential rental property, they must pay GST/HST on the purchase. This even applies to builders who have constructed the property and then “self-supplied” it. Purchases of new homes or substantial renovations may be eligible for a rebate, however, which will be discussed in further detail below.
Maintaining Rental Property
If you are in the business of renting property on a long term basis, generally the GST and HST paid on operating expenses is not recoverable. However, if you are in the business of renting property on a short term basis (Ie daily or weekly stays), then it may be possible to recover the GST and HST incurred on your expenses through the claiming of input tax credits.
When Is a Buyer Eligible for a Residential Rental Property Rebate?
There is a federal tax rebate available for purchasers who have bought a new construction or newly renovated home from a builder. The rebate also extends to payments employing others to build or renovate a rental home, modifying a non-residential property into a residential property, or buying land to be leased to others. To qualify for the new residential rental property rebate, there are a few criteria the purchaser must meet listed below.
- The new residential property must be occupied immediately by tenants for at least one year. The landlord cannot be the first person to live in the new rental property. It must be immediately rented out.
- The purchaser must claim the rebate with the Canada Revenue Agency. The builder cannot claim the rebate. The buyer must claim the rebate by submitting an application to the Government immediately following closing on the property.
The rebate applies to:
- Purchasers who paid the GST/HST on the closing of a new or renovated housing complex in a residential building
- Builders who accounted for GST/HST on the self-supply of a residential complex
- Co-operative housing corporations (“co-ops”) that paid the GST/HST upon purchase or self-supply of a residential complex or addition to a residential complex.
Self-supply refers to a situation where a builder has built the residence and then sold it to itself as the owner. There may be other scenarios in which the purchaser of a rental property can claim the rebate. Consider speaking with an experienced Canadian tax lawyer for more information if you believe you may qualify for this rebate.
How Do I Calculate the Rebate?
Once you have determined your eligibility, the residential rental property rebate is fairly straightforward to calculate. 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. One exception to this limit is for residential trailer parks – in this case, the fair market value must be less than $112,500. The NRRP is then calculated at 36% of the GST (or the federal portion of the HST) paid on the purchase. The maximum rebate is $6,300. There may be rebates available for provincial sales taxes as well. Ontario offers a rebate of 75% of the provincial portion of HST, with a cap of $24,000.
What If I Rent a Vacation or Second Home?
Even if you are not in the business of being a landlord, any property that you rent should be considered in your tax liability. Again, any income generated from a rental property must be included in either a personal tax return, or if operated through a business, in the business’s tax return.
If you manage an Airbnb property, you may also need to collect the GST/HST on your rental property. Generally most short term rentals (Ie rentals for less than 30 consecutive days) are subject to GST/HST however even some long term rentals can be taxable – if the rental is of a ‘hotel type’ property. The policy here is that short-term rentals are subject to sales tax, while long-term rentals are generally not.
As of July 1, 2021 Airbnb may collect this tax in certain limited circumstances if the property owner does not collect the tax on their own behalf. Property owners should consider how this impacts their operations so they understand who must account for the GST/HST remit it to the Canada Revenue Agency.
Bear in mind that you may not be subject to the GST/HST if you are considered a “small supplier” per the Canada Revenue Agency. A small supplier is one whose revenue is less than $30,000 in the last four calendar quarters.
Get Help from an Experienced Canadian Tax Lawyer Today
Whether you own large residential rental properties or simply rent out a vacation home for a few months of the year, you most likely have both federal and provincial tax obligations. Determining which taxes you are subject to and how much you owe can be challenging, so consider reaching out to Jeremy Scott Law with your tax questions. We enjoy working with clients to minimize their tax liability and maximize their potential rebates. Give us a call at 902-403-7201 or contact us online with your GST/HST rental property questions, and allow us to provide practical and helpful tax advice.
If you found this information valuable, I encourage you to check out my other blog posts.
Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.