Airbnb / VRBO/ Short-Term Accommodations
With inflation being the common water cooler chat recently, many clients have been asking me about short term rentals as a potential opportunity to beat inflation. This is likely because the ‘VRBO’ & ‘Airbnb’ opportunities are plentiful in London and the surrounding area, combined with the general consensus that being locked into a residential lease from 5 years ago (only minor increases permitted) is a pain today!
It’s no surprise that investors are trending towards Airbnb renting a property to avoid that headache. It’s not an all together bad plan, but, the tax implications can be severe and should be considered. While there is typically an effective Net Zero HST on residential properties, owner occupied and long term rented properties with short term rental history are likely to create an HST obligation on the eventual sale of the property. In many cases this HST liability could extend far beyond any income generated from short term rentals. Each case is specific and every investor is specifically cautioned to speak directly with their qualified accountant. It stands to reason, that before making this investment, a direct and specific conversation with your accountant is essential.
Some of these obligations have become so severe that Mr. Greg Toner CPA, CA, TEP, CLU, a principal owner of Toner & CO CPA Professional Corporation, not only suggests that each potential investor speak directly with their accountant before investing in a short term property, he is also recommending that real estate agents representing a buyer might want to add a disclosure to purchase agreements that the seller has not previously used a property for short term rentals, to avoid complications during the sale process. In February of 2007 the Canada Revenue Agency created a guide to HST and vacation properties, this is a very useful document -Clink Here for A Link to the CRA Document-
Looking for a quick income solution, Mr. Greg Toner recommends limiting all rental stays to being longer than a month, nothing shorter!
As a counter opportunity, have you considered student rentals? A 1 year lease is a typical minimum term, negating many of the typical short term rental HST concerns. Additionally student leases tend to be inflation protected as the tenants are not likely to extend their stay for longer than a few years. There are always exceptions, but data suggests that students tend to move frequently. This limits your HST exposure and reduces your exposure to inflation concerns associated with long term tenants. With the University of Western Ontario and Fanshawe College being located right here in London, it’s a game changing opportunity for investing in London.
Still want to purchase a dream cottage and rent it out short term? Absolutely! Never give up that dream. But before you make this purchase, please sit down with a professional accountant and make sure you know all the tax obligations and how to effectively manage your break even analysis!
CRA Guidance on Short Term Rentals Link
Author Credit: Christopher Bol