November 15, 2018

Share on:

If you own a condominium unit in B.C. that is currently vacant or being rented on a short-term basis, or if short-term rentals are contemplated, there are certain tax and non-tax implications to consider. This article provides a brief list of items to discuss with your tax advisor.


INCOME TAX CONSIDERATIONS

Business Income vs. Property Income
Generally, rental income earned from the rental of real property may be considered property income or business income. Income from property generally includes rent; however, the specific facts must be considered in the determination of such income as property or business. Such considerations can include, inter alia, the offering of services in addition to basic services (i.e., parking and heat) such as meals, cleaning services and washroom supplies.

Rental Tax Implications

The classification of rental income as business income or property income is important as it will result in certain income tax implications, such as:

  • Capital Cost Allowance (depreciation). Where rental income is classified as property income, depreciation cannot be claimed in excess of net rental income. Such limitation does not exist where rental income is treated as business income.
  • Income Attribution. Generally, where property transferred by a taxpayer to the taxpayer’s spouse, common-law partner or child under 18 results in property income (or loss), the income may be attributed back to the taxpayer. These rules typically do not apply to attribute business income back to the taxpayer even in situations where the business operates with property acquired from the taxpayer.
  • Non-resident Taxpayers. Generally, when a non-resident taxpayer earns property income from the rental of Canadian real property, income tax withholdings on the gross rental income is required, subject to certain elections being made. Where such income is considered business income, the non-resident will be subject to Canadian federal and provincial income tax.

If you own the unit through a corporation, the corporate tax rate will depend on whether the income is considered property or business.

CHANGE IN USE

Generally, when there is a change in the use of a property, to or from an income-earning purpose, you are deemed to have disposed of the property at its fair market value and to have reacquired the property for the same amount. A gain in respect of a change in use to income-earning, or a gain in respect of a change in use from income-earning, may be deferred subject to certain requirements and tax elections being made.

These rules are complex and should be considered each time a change in use of real property is contemplated.

GOODS AND SERVICES TAX (GST)

Requirement to Charge GST
Generally, short-term rentals (i.e., rentals of a period less than one month) are subject to GST unless you have taxable supplies below $30,000 in the previous four quarters, meet the requirement of being a “small supplier”, and are not currently registered for GST. Therefore, where you earn more than $30,000 in taxable supplies (i.e., revenue from short-term rentals), you are required to register for, collect, and remit GST. Please note that a GST registrant may claim input tax credits (ITCs) in respect of GST paid on reasonable related expenses.

Sales of Units
The sale of a unit is generally exempt from GST if it is considered a “residential complex”. The following may indicate the unit is not a residential complex:

  • If the seller is a builder
  • If the seller claimed an ITC on the acquisition of the unit or on any improvements
  • If there was a substantial renovation made to the unit
  • If the unit is a hotel, boarding house, lodging house or other similar premise. Whether the unit is considered a hotel or similar premise will depend on if the building is primarily (more than 50 per cent) used by the owner or the owner’s family as a residence, and if all or substantially all (90 per cent or more) of the rental periods are for less than 60 days.

If your unit is not considered a residential complex, it may not be exempt from GST.

Change in Use
A conversion of a unit to or from a residential complex may result in the requirement for a taxpayer to self-assess GST on the fair market value. CRA has not updated many of its policies for the current changes to the rental market industry and therefore determining the GST implication can be challenging.

PST and Municipal and Regional District Tax (MRDT)
Generally, PST and MRDT applies to short-term accommodations provided in B.C., unless specifically exempted. Accommodation
provided for a continuous period of more than one month is generally exempt from PST and MRDT, subject to certain requirements.

OTHER CONSIDERATIONS

City of Vancouver Vacancy Tax
Units that are considered vacant face an additional property tax of 1 per cent of the assessed value of the unit. Vacant property includes units that are unoccupied for more than 180 days during the vacancy reference period. Unoccupied property includes units that are not the principal residence of the occupier or are not occupied by a tenant or subtenant for a term of at least 30 consecutive days. Accordingly, subject to certain exceptions, your units may be considered vacant and subject to the 1 per cent tax.

BC Speculation Tax
Residential units that are considered unoccupied for six months within a calendar year face a speculation tax. A thorough analysis
should be made once legislation is released, which is expected to occur this fall.

Vancouver Business License
Effective September 1, 2018, eligible short-term rental operators must have a business license and must include the business license
number on all rental listings. The City of Vancouver has indicated that short-term rentals may only be operated from a principal residence and therefore any other short-term rentals are simply not allowed. Further, non-compliance may result in substantial fines. As the specific rules regarding the business license requirement are new, we caution that consideration to these rules should be given where short-term rentals are contemplated.


Our experience with real estate owners, investors and construction companies allows us to tailor our services to our client’s specific needs.

For further information, we encourage you to contact Maggie Puhacz.

Source: Landlord BC Magazine

Sign up to receive our newsletter