Renting your vacation property can help offset costs, but starting or stopping those rentals may quietly change your GST/HST position in ways many owners don’t anticipate. In the last article of this series, we discussed the GST/HST implications of buying and selling a short-term rental property. In this post, the focus will be on what happens when a property starts or stops being rented. In tax terms we call that a change-in-use.

What is a Change-in-use?

A change-in-use occurs when a property was used for personal use (example: vacation property – cottage, ski chalet, etc.) and is converted to an income property or vice versa. In addition to income tax implications, changes in use can also have GST/HST implications. Professional advice should be sought before changing the use of your property.

When is GST/HST Registration Required?

Once a property is a short-term rental property where income exceeds $30,000, registration is required. It is also important to note, that early registration can allow the registrant to claim input tax credits (“ITC”). It is important to plan ahead to determine when GST/HST is required and when early adoption may be beneficial.

GST/HST Considerations

• Changes from rental to personal use
  • When property changes use from a rental to a personal use property, there is a deemed disposition. This deemed disposition may result in a GST/HST owing based on the value of the property.
• Changes from personal to rental use
  • When a GST/HST registrant makes a change-in-use, they may be able to claim an Input Tax Credit. If a property was used as a vacation property previously and then converted into a short-term rental property, if registered for GST/HST, the year it changes use an ITC may be claimed on the value of the property.
• Extent in use affects amount of Input Tax Credit (ITC)
  • The CRA may assess the amount of an ITC that can be claimed depending on the extent of use.
    • If a property is used 90% or more for income, then the full ITC may be claimed.
    • If a property is mixed use, where use can vary between 10% – 90% for income purposes, then a portion of the ITC can be applied based on that usage.
• Significant Change in Use
  • A significant change-in-use is determined on an ongoing basis for the commercial use of the property. A significant change (10% or more) can trigger GST/HST implications
  • Decrease in Commercial Use:
    • If an ITC was previously claimed and there is a decrease in commercial activity, all or a portion of the ITC may need to be repaid.
  • Increase in Commercial Use:
    • If an ITC was previously not entitled to claim and there is an increase in commercial activity, all or a portion of the ITC may be claimable.

Consistently tracking the use of the property will be necessary to determine if there are significant changes in use which may have GST/HST implications. We recommend seeking professional advice in determining if a significant change in use has occurred.

Contact McCay Duff LLP in Ottawa to Help with Short-term Rental Properties

A team of professional accountants, tax consultants, and estate planners can help you chart out a succession plan and work alongside you at all stages, handling the organizational structure and tax planning. At McCay Duff LLP, our accountants and tax planners offer a range of services, including opening and managing trusts, planning share structures, and estate planning. To learn more about how McCay Duff LLP can provide you with the best taxation and succession planning expertise, contact us online or by telephone at 613-236-2367 or toll-free at 1-800-267-6551.