Investing in residential real estate in order to rent through Airbnb? Proceed with caution!

If you purchase a used residential immovable (for example, a condo), which is not taxable, in order to rent through Airbnb, meaning solely short-term rentals (for periods of less than 60 days), you may have a very bad surprise upon reselling your immovable.

Essentially, if 90% or more of the rental periods for your immovable are of less than 60 days, your immovable may lose its status as a “residential immovable” within the meaning of the law. If this happens, any subsequent sale will be subject to GST/QST, which would be a bad surprise for potential buyers who will have to pay the GST/QST upon acquiring the immovable.

If, however, you sell your immovable without charging GST/QST when the sale was taxable, you will have to pay the taxes on the sale price you received upon the immovable’s sale.

For example:

• You purchase a used residential condo for $275,000.
• For the entire time you own it, you rent it out for periods of less than 60 days on a regular basis.
• You resell it two years later for $300,000 without charging sales tax (GST/QST).
• If the tax authorities consider the immovable to have lost its status as a “residential immovable” within the meaning of the law, you will be required to remit $34,925 to the tax authorities in GST/QST (representing the applicable GST/QST on the $300,000 sale price) even if you are not a GST/QST registrant, in addition to having to pay the taxes on your $25,000 in gains (profit) from reselling the immovable.

If, instead of selling, you decide to stop renting your immovable for periods of less than 60 days or to rent it less frequently, such that it regains its status as a personal residence (or as a residence for long-term lease, not subject to GST/QST), you must then pay Revenu Québec the GST/QST on the residence’s fair market value at the time of this change.

Beware of the tax impacts that can stem from the short-term rental of a residential immovable.