Tax alert: new rules for short-term rentals in B.C.
Tax alert: new rules for short-term rentals in B.C.
The Province of B.C. has introduced new rules to help local municipalities enforce requirements on the short-term rental market and return more rental units to the long-term rental market. Notably, it will limit property eligible for short-term rentals in most jurisdictions to the provider’s primary residence plus one secondary suite or accessory dwelling unit.
Property owners who opt to exit the short-term rental market and enter the long-term rental market because of these changes must be aware of the impacts this will have on their GST and PST registration and reporting requirements.
Here, we review the preliminary details of the new B.C. requirements and the factors property owners may want to discuss with an advisor before making any changes to property use.
The Province of B.C. (the province) has introduced new rules geared toward making more units available for long-term residential use. The rules target three different areas:
- Increasing fines for persons not following the rules
- Requirements for platforms to share information and obtain business licenses from operators
- Returning more units to long-term homes
As part of the measures announced on October 17, 2023, the province plans to implement a principal residence requirement effective May 1, 2024, limiting short-term rentals to the host’s principal residence plus one secondary suite or accessory dwelling unit.
The principal requirement will apply province-wide in municipalities and adjacent communities with populations of 10,000 and above. Future regulations are anticipated to set out areas or types of accommodation that will be exempt from the principal requirement, including:
- The 14 resort municipalities
- Municipalities under 10,000 population (except those adjacent to larger municipalities)
- Regional district electoral areas
- Mountain resort areas and designated resort regions
- Islands Trust
- Agri-tourism accommodations
Local governments in exempt areas can request to opt-in to the principal residence requirement. Communities with higher vacancy rates will also have a process to request to opt out of the principal residence requirement. The new rules will not apply to the hotels, motels, reserve lands, Nisga’a Lands, or the Treaty Lands of a Treaty First Nation.
Background on GST for short-term rental properties
The supply of short-term accommodation is taxable for GST purposes. Registration for GST may be required if a person engaged in supplying short-term accommodations exceeds the $30,000 small supplier threshold. The person supplying short-term accommodations may also choose to voluntarily register for GST.
As a GST registrant, the person must collect GST on the rent generated from short-term accommodations and may recover the GST paid on purchases and expenditures, including GST levied on the acquisition of real property used for short-term accommodations.
The federal government and the Province of B.C. previously introduced rules requiring that all property rentals listed through a platform (such as Airbnb or Vacation Rentals by Owner (VRBO)) be subject to GST. Where the property owner is not registered, the platform is required to be registered and collect GST/HST on all rentals.
In cases where a property owner is registered for GST/HST, the platform will pass on the GST collected for the owner to remit on their return unless a special election has been entered into with the platform.
B.C. also has a provincial sales tax (PST) and, in many jurisdictions, a municipal regional district tax. Where property is rented through a platform, the platform will remit these taxes on the property owner’s behalf.
Tax Services
The impact of the new rules for short-term rentals
Unlike short-term rentals, the supply of long-term residential rentals is exempt for GST purposes. A person supplying long-term residential rentals is not required to collect GST on the rental revenue and cannot recover the GST paid on related purchases/expenses — including GST paid on the acquisition of the real property.
Property owners engaged in the short-term rental market may decide to sell their property or start renting their properties on a long-term basis when the new principal residence rules come into effect. In these cases, they should be aware that they will have GST implications. Generally, a sale of a property used for short-term rentals will be subject to GST. Converting a property from short-term to long-term use may also trigger a change in the use of the property for GST purposes.
When a person first begins to use real property exclusively in GST-exempt activities (i.e., long-term residential rentals), the Excise Tax Act (the ETA) deems the person to be a builder who has substantially renovated the property. Self-supply rules will apply when an individual first occupies the property as a place of residence (i.e., first rented). Accordingly, the property owner must self-assess the GST on the property's fair market value and report the GST. In some cases, the tax may become due the month following the change in use.
The rules concerning GST and real property are highly technical, and multiple factors can affect their implications. If you have any questions regarding the new provincial rules and how they apply to your property — or how the GST may apply to your rental properties — contact your indirect tax advisor.
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