Short-term rentals (STRs) have seen massive growth across Canada, with platforms like Airbnb changing how people travel and how property owners earn income. Many investors have turned their condos, basements, or vacation homes into income-generating assets through these platforms. However, what many do not realise is that running a short-term rental business brings tax obligations that go beyond regular rental income.

The Goods and Services Tax (GST) or Harmonized Sales Tax (HST) plays a big role in this industry. According to the Canada Revenue Agency (CRA), certain short-term rental activities are considered commercial in nature and may require property owners to charge, collect, and remit GST/HST. This is where confusion begins for many hosts. The CRA has been increasing its scrutiny of STR operators in recent years, making compliance more important than ever.

Remember that missing these obligations could result in costly penalties, interest charges, and unexpected tax bills. Understanding how GST/HST applies to STRs is no longer optional; it is essential for anyone operating in this space.

In this blog, we break down how GST/HST applies to short-term rentals in Canada and why it matters for every Airbnb host. 

Table of Contents

• GST/HST rules for STRs
• Change-in-use traps
• Input Tax Credits (ITCs)
• Selling a property after STR use
• The Airbnb example
• Audit risk & compliance
• Practical playbook for owners
• In Essence

GST/HST rules for STRs

The primary rule to know is the 60-day threshold. Under Canadian tax law, if you rent your property for periods of less than 60 continuous days, your rental is generally considered a short-term rental and falls under the commercial activity category for GST/HST purposes. This means you may need to register for a GST/HST number and collect tax from your guests.

Residential rent for periods longer than 60 days is considered exempt from GST/HST. But the moment you start offering your home or condo for shorter stays, it becomes taxable. This difference between residential and commercial classification is crucial and often misunderstood by first-time Airbnb hosts.

It is advised to check the rental patterns early in the year. If the revenue from STRs is more than $30,000 annually, GST/HST registration becomes mandatory.

Change-in-use traps

One of the most complex issues STR investors face is the “change-in-use” rule. When you switch a property from long-term residential use to commercial use (like listing it on Airbnb), the CRA considers this a change in how the property is used for tax purposes. This can create a “deemed sale,” meaning you may be required to self-assess and remit GST/HST on the property’s fair market value at the time of the change.

For example, if you own a condo that you have lived in and then start using exclusively for short-term rentals, you may trigger this deemed sale. The timing of when you make the switch is also critical because failing to report it promptly can result in penalties. Many property owners overlook this, only to discover a large unexpected tax bill later.

It is important to carefully plan before starting STR operations. A clear tax strategy can help avoid triggering unnecessary costs.

Input Tax Credits (ITCs)

One of the potential benefits of GST/HST registration is the ability to claim Input Tax Credits (ITCs). These credits allow STR operators to recover the GST/HST paid on expenses related to running the rental business, such as cleaning services, renovations, or supplies.

However, claiming ITCs is not always straightforward. If the property is used for both personal and business purposes (for example, you stay there part of the year and rent it out part of the year), you must allocate expenses fairly between personal and commercial use. Incorrect allocation is a common audit trigger.

A clear record-keeping system is crucial. Keeping receipts, invoices, and proof of business use can protect you if the CRA reviews your claims.

Selling a property after STR use

Before we look at the table, remember that selling a property after using it for STR purposes can convert what would have been a tax-free sale into a taxable one. The rules are complex, but the table below provides a simplified picture.

As shown, the GST/HST treatment depends heavily on use and timing. This is why professional advice is important when planning to sell. A tax professional can help structure the exit in a way that minimises tax liability.

The Airbnb example

Airbnb is the most common example the CRA uses when discussing short-term rental taxation. 

Because Airbnb facilitates millions of transactions, CRA has access to data and has been actively auditing hosts. In fact, according to a 2023 industry report, more than 25% of Airbnb hosts in Canada have been contacted by the CRA for compliance checks.

This makes Airbnb hosts particularly vulnerable if they are not properly registered for GST/HST. The CRA has also partnered with Airbnb to share transaction information, meaning underreporting is increasingly risky. For STR operators, Airbnb is a case study in how quickly tax compliance issues can arise if obligations are not met.

Audit risk & compliance

With STRs under increasing CRA scrutiny, audit risk is high. The CRA looks for red flags such as unreported rental income, failure to register for GST/HST, and improperly claimed ITCs. Documentation is key – keeping contracts, invoices, and records of guest stays can make the audit process smoother.

It is recommended to set up a dedicated system for tracking STR revenue and expenses. Cloud-based accounting tools can make this process easy and reduce the risk of errors. Being proactive about compliance not only prevents penalties but also helps hosts sleep better at night.

Practical playbook for owners

For STR owners who want to stay compliant, here is a practical approach:

• Register for GST/HST once you cross the $30,000 threshold.
• Keep detailed financial records of income and expenses.
• Plan for the tax implications of changing property use.
• Consult professionals before selling a property used for STR.
• Review compliance annually to avoid surprises.

This quick playbook acts as a guide to managing your tax obligations effectively and staying ahead of CRA audits. Planning can help protect your profits and reduce unnecessary stress.

In Essence, 

Short-term rentals offer property owners a powerful way to generate income, but they also introduce a layer of tax complexity that cannot be ignored. Understanding GST/HST obligations is more than just ticking a compliance box; it is about protecting your investment, avoiding costly mistakes, and maximising returns. 

The 60-day rule, change-in-use considerations, Input Tax Credits, and potential tax on sale all interact to create a complex web of rules. Ignoring these factors can lead to penalties, interest, and unexpected tax bills.

The CRA has increased its focus on short-term rental operators, and with access to data from platforms like Airbnb, compliance checks are becoming more frequent. This makes accurate record-keeping, timely GST/HST registration, and proper tax planning essential for every STR host. Seeking professional advice can save significant stress and money in the long run. Managing your business finances can feel overwhelming, especially when it comes to HST handling, tax compliance, and bookkeeping. 

That is where Orbit Accountants comes in. Our team specialises in making the process simple, accurate, and stress-free, so you can stay focused on what really matters: running and growing your business. Whether you need help with HST filing, payroll, or year-end taxes, we provide reliable, personalised solutions that fit your unique needs. Partner with Orbit Accountants and gain peace of mind knowing your accounts are in good hands.

Contact us today to start simplifying your business finances!