ToAirBNBornotAirBnB?TaxConsiderations

PresentedBy:

MelindaFleming,BA,CertSeniorManager,IndirectTax

p.902-491-7743e.Melinda.Fleming@ca.gt.com

TeresaGannon,CPA,CASeniorManager,Taxp.902-491-7483

e.Teresa.Gannon@ca.gt.com

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Salestax•  Realpropertysupplies–whatistaxable/whatis

exempt?•  Salestaxregistrationandrecovery•  Saleofrealpropertyusedinshort-termrentals•  Determiningextentofuse•  examples

Incometax•  Typeofproperty•  Principalresidence•  Partialportionofprincipalresidence•  Incomeandexpenses

Agenda

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Taxablesuppliesofrealproperty:•  thesupplyofnon-residential/short-termrentals•  thesaleofrealpropertyusedprimarily(morethan50%)in

short-termrentalsincludingBedandBreakfastoperations

Exemptsuppliesofrealproperty:•  residentialrentwherethepurposeofoccupancyisasa

placeofresidenceorlodgingbythesameindividualunderthearrangementforatleastonemonth

•  thesaleofusedresidentialpropertyusedprimarily(more

than50%)asaplaceofresidenceincludingBedandBreakfastoperations.

Realpropertysupplies–whatistaxableandwhatisexempt?

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Salestaxregistrationandrecovery

WhenmustapersonregisterforHST?•  Incomefromshort-termrentals>$30,000overfour

consecutivecalendarquarters–RequiredtoregisterandchargeHST

•  Ifincomefromshort-termrentals<than$30,000overfourconsecutivecalendarquarters,notrequiredtoregisterorchargeHST

Canapersonrecovertaxpaidonexpenses?

•  IfregisteredforHSTrecoveryisavailablebasedontheextentofuseofthepropertyinshort-termrentaldependingonthetypeofexpenditure

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Recap-saleofrealpropertyusedinshort-termrentals

Taxablesalesofrealproperty:•  wherethepropertywasusedprimarily(morethan50%)

inshort-termrentalactivity

DoesHSTregistrationstatusmatter?•  generally,whethervendorisregisteredforHSTornot,

thesalewillstillbetaxablewherethepropertyisusedprimarilyinshort-termrentals.

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Determiningextentofuse

Howdoyoudeterminewhetherornotthepropertymeetstheprimarytest?•  CRAdoesnotprescribeanymethod,simplymust

be'fairandreasonable'

•  Daysusedpersonallyvs.daysrented(note:amethodthatautomaticallyconsidersallunoccupieddaysasdaysforuseincommercialactivitiesisnotgenerallyacceptedbyCRAasfairandreasonable)

•  SquarefootageconsiderationsforBNBtypepropertieswhereapersonrentsout'rooms'intheirprimaryresidence.

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Example1

Mr.JohnsonboughtanewcondoindowntownHalifax.HisintentionwastousethepropertytorentthroughAirbnbonfulltimebasis.HisaccountantadvisedthatheshouldregisterforHSTandtoself-assesstaxonthepurchase(remittaxonthepurchaseandclaimedaninputtaxcreditonthepurchase).Mr.JohnsonrentedthecondothroughAirbnbthroughouttheentireyear.Inthefollowingyear,therealestatemarketsoaredinHalifaxandMr.Johnsondecidedtogetoutofthebusinessandsellthecondo.Clearlythisisabusiness.Thefactthatheusedthepropertyfullyinshort-termrentalswouldcausethesaletobetaxable.

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Example2

Mrs.SmithboughtausedcondoindowntownHalifaxtoliveinduringa5monthworkcontractasherpersonalresidence.Duringtheother7months,shedecidedshewouldlistthecondoweeklythroughAirbnb.ShedidnotpayanyHSTwhenshepurchasedtheproperty–itwasanexemptpurchase.Mrs.Smithdidnotexpecttoearnmorethan$30kayearfromshort-termrentalincome,soshedidnotregisterforHST.Mrs.Smith'sworkcontractendedthefollowingyearsoshedecidedtoselltheproperty.EventhoughMrs.SmithwasnotregisteredforHST,nordidsherecoveranytaxonpurchaseorimprovementstotheproperty,thesubsequentsalewouldattractHSTassheuseditprimarily(morethan50%)inshort-termrentals.

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Example3

Mr.JoneshasownedandlivedinhishouseinHalifaxforanumberofyears.HerecentlyretiredanddecidedthatHalifaxwastoocoldinthewinter,sohewouldspendfourmonthsoftheyearinFloridainstead.Duringhistimeaway,hefiguredhecouldrentouthishouseweeklyforthefourmonthsandmakesomeextramoneytofundhistimeaway.Heneverexpectedtoexceedthe$30kinshort-termrentalincome,soheneverregisteredforHST.TheplanwassuccessfulandMr.Jonesrentedhishomeoverthefullfourmonthshewasawayonaweeklybasis.Thefollowingyear,Mr.JonesdecidedthathelikedthewarmweathersohewouldmovetoFloridaandsellhishouse.Sincethehousewasusedmorethan50%ashispersonalresidencethroughouttheyear,thesubsequentsalewouldbeexemptoftax.

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Example4

Mr.andMrs.Smithownafourbedroomhouse.Theirchildrenhaverecentlymovedout,sotheydecidetorentoutthreeofthefourbedroomsintheirhomeonAirbnbonanightlybasis.Theydonotexpecttoexceed$30kinshort-termrentalincome,sotheydonotregisterforHSTorrecoveranytaxonexpensesincurredtorentouttherooms.Thehouseisa3,000squarefootproperty.Mr.andMrs.Smithoccupy2,000squarefeetofthepropertyfortheirkitchen,livingspaceandpersonalbedroom.Thethreerentalbedroomstakeuptheother1,000squarefeetofthehouse.Inthefollowingyearafterrentingthepropertyinthismanner,Mr.andMrs.Smithdecidetosellthehouse.Inthiscase,thesubsequentsaleofthepropertywouldnotattracttaxasthepropertyhasprimarilybeenusedasMr.andMrs.Smith'spersonalresidence.

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IncomeTax

Typeofproperty•  Separatebuilding•  Entireprincipalresidence•  PartialportionofprincipalresidenceEntireprincipalresidenceDoyouhaveachangeinuseoftheproperty?Restrictions:•  CannotclaimCCA•  Canonlyreportupto4yearsunlessother

criteriaaremet•  Mustreportallearnings•  Cannotreportanyotherpropertyasyour

principalresidenceduringthistime.

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Entireprincipalresidence

Doyouhaveachangeinuseoftheproperty?Restrictions:•  CannotclaimCCA•  Canonlyreportupto4yearsunlessother

criteriaaremet•  Mustreportallearnings•  Cannotreportanyotherpropertyasyour

principalresidenceduringthistime

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Partialuseofyourprincipalresidence

DeemeddispositiononthepartialportionatfairmarketvalueConditions:•  Theincomeproducinguseisancillarytothe

mainuseofthepropertyasaresidence•  Nostructuralchangestotheproperty•  NoCCAhasbeenclaimed

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ClaimingIncomeandExpenses

Income•  RentalincomeorBusinessIncomeExpenses•  Deductions•  Proratedcosts•  Capitalexpenditures•  Repairsandmaintenance

Questions?

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