Operating a Bed and Breakfast in Your Home

GST/HST Info Sheet GI-007
September 2006

This info sheet explains how the goods and services tax/harmonized sales tax (GST/HST) applies to bed and breakfast (B & B) establishments operated by individuals.

In this publication "taxable" means subject to the GST/HST at 6% or 14%, and "exempt" means not subject to the GST/HST.

If you are a registrant, you must collect the GST/HST in your B & B operation on amounts charged for the following taxable sales:

• accommodation of less than one month;
• prepared meals and many other food and beverages; and
• parking.

But if the total price for

• accommodation and a meal, or
• accommodation only (if no meal is provided)

is $20 per day or less, you do not charge or collect the GST/HST.

If you provide accommodation and a meal for a single price that is more than $20 per day, you must collect the GST/HST on the entire amount even if you consider the accommodation portion to be $20 or less. For example, if you charge a single price of $22 of which $15 is for accommodation and $7 is for breakfast, you must collect the GST/HST on the single price of $22.

The $20 threshold is based on the per room charge not the charge per person. Splitting a room rental charge that is more than $20 per day by invoicing separately the individuals sharing the same room so that the price per individual is not more than $20 does not relieve you from having to charge the GST/HST on the accommodation. For example, if three individuals are each charged $15 for a shared accommodation in one room, you must charge and collect the GST/HST on each of the $15 charges.

On the other hand, if you are simply providing a right to non-exclusive use of a room (such as typical dormitory-type hostel accommodation) and your pricing practice takes the form of a "per occupancy charge" as opposed to a "per room charge", you do not charge or collect the GST/HST if your "per occupancy charge", including any meals that you provide, is $20 per day or less.

Registration rules

You must register for the GST/HST if your revenues from taxable sales and rentals in the last four calendar quarters are more than $30,000. You must also register if your taxable revenues at any time in a single calendar quarter are more than $30,000. However, if your taxable sales and rentals are below $30,000, you may still register voluntarily.

If you are a registrant, you may be eligible to claim input tax credits (ITCs) to recover tax paid on purchases or expenses such as dishes, cutlery, linens, utilities, maintenance or cleaning services used in your B & B operation. More information on ITCs is provided below.

If your taxable revenues are below $30,000 and you choose not to register, you do not charge or collect the GST/HST on your sales and rentals. As well, you are not eligible to claim ITCs for the tax paid on your purchases or expenses.

ITC rules related to the operation of a B & B establishment

If a purchase or expense (other than capital property) relates exclusively (90% or more) to your taxable B & B operation, you may claim an ITC for the full amount of the GST/HST that you paid on it, provided that you are a registrant. For example, if 90% of a linen cleaning service that you purchased relates to your taxable B & B operation, you may claim an ITC for the entire amount of tax paid on it.

You may also claim, as an ITC, a portion of tax paid on a purchase or expense that is used less than 90% in your taxable B & B operation. For example, if 30% of your utilities bill relates to the taxable B & B operation and 70% relates to the part of the house that you live in, you may claim an ITC of 30% of the GST/HST you pay on the utilities charge. However, the purchase or expense must be used more than 10% in your taxable B & B operation before you may claim an ITC.

The general rule for capital personal property such as furniture is different from the ITC rule for non-capital property discussed above. If you purchase capital personal property for use primarily (more than 50%) in your taxable B & B operation, you may claim an ITC for the full amount of the GST/HST paid on that property. You may not claim an ITC for the GST/HST paid on the purchase of capital personal property if that property is used 50% or less in your taxable B & B operation.

For example, if you purchase bedroom furniture for use primarily in your taxable B & B operation, you may claim an ITC for the full amount of the GST/HST paid on the furniture.

The method you use to determine the extent of use in your B & B operation must be fair and reasonable for your specific circumstances and must be used for at least one year before changing to another method.

ITC rules related to the purchase or renovation of a house are explained below.

Purchasing, renovating or selling your house when it is used primarily as your place of residence

If you begin operating a B & B establishment in your home, you will not incur any tax liability on your house while operating the B & B establishment, or when you close your B & B operation, or on any later sale of your house, provided you continue to use your house primarily as your place of residence.

You may not claim an ITC for the GST/HST paid on a house you purchase or renovate when you use the house partly in your B & B operation but primarily as your place of residence. For more information, refer to paragraph 41 in GST/HST Memorandum 19.4.2, Commercial Real Property: Deemed Supplies.

You may be able to claim a GST/HST New Housing Rebate for a portion of the GST/HST paid to a builder for the purchase of a new or substantially renovated house (whether you purchase the land or lease it long-term from the builder), or for a portion of the GST/HST paid on your costs if you build or substantially renovate your house, provided the house is used primarily as your place of residence. Substantial renovation means 90% or more of the interior of the house has been removed or replaced. For additional information on substantial renovations, refer to the GST/HST Technical Information Bulletin B-092, Substantial Renovations and the GST/HST New Housing Rebate. The rebate is not available to individuals that are members of a partnership or to an incorporated entity. For more information on the rebate, refer to the GST/HST Guide RC4028, GST/HST New Housing Rebate.

Finally, since you are using your house primarily as your place of residence, you would not charge the GST/HST when you sell it.

If your house is used primarily for your taxable B & B operation

Purchasing and selling your house

If you purchase a new house primarily for use as a taxable B & B operation (and therefore not primarily as your place of residence), you would be eligible to claim partial ITCs for the GST/HST paid on the purchase of the house to the extent that it is used in your taxable B & B operation, provided you are a registrant. In other words, you may not claim ITCs on the portion of the house in which you live, but you may claim as an ITC the GST/HST that applies to the price attributed to the portion of the house used for the taxable B & B operation.

Since you are not using your house primarily as your place of residence, any later sale of your house is treated as the sale of two separate portions or properties. Tax does not apply to the portion of the house in which you live. However, the GST/HST does apply to the price attributed to the remaining portion of the house.

The price attributable to each portion may be determined using comparable sales of similar properties in the local real estate market. If you sell your house to a registrant, it is the purchaser who is required to pay the tax to the CRA. As well, you and the registered purchaser may be entitled to file an election to relieve the tax on the sale of your house as part of the sale of your B & B operation, provided certain conditions are met. For more information, refer to GST/HST Policy Statement P-188, The Supply of a Business or Part of a Business for the Purpose of the Election under subsection 167(1).

Beginning B & B operations in your existing house and later selling your house

If you register for the GST/HST and begin operating a B & B establishment in your existing house and use the house primarily for that operation, at that time you are treated as if you had:

• purchased the house; and
• paid the GST/HST, based on a basic tax content calculation, on the B & B portion.

However, if you become a registrant some time after you begin using your house primarily for your B & B operation, you are treated as if you had purchased the house and paid tax based on the basic tax content calculation that is attributable to the B & B portion at the time you become a registrant.

This enables you to claim partial ITCs for the GST/HST that you paid, if any, when you previously purchased the house as well as on any improvements (e.g., installation of a central air conditioning unit) you made in respect of the taxable B & B portion. For additional information on basic tax content, refer to the Appendix in GST/HST Memorandum 19.2.3, Residential Real Property – Deemed Supplies.

On any later sale of your house, you would have to charge the GST/HST only on the price attributed to the portion of the house or the property used in your B & B operation and not on the portion in which you live.

Beginning B & B operations after renovations (not substantial) and later selling your house

If you renovate your house (i.e., not a substantial renovation), register for the GST/HST and begin using the house primarily for your B & B operation, when you start your B & B operation, you are treated as if you had

• purchased the house; and
• paid the GST/HST, based on the basic tax content calculation, on the B & B portion.

This enables you to claim partial ITCs for the GST/HST paid on your renovation (provided the renovated section is used for your taxable B & B operation). It also enables you to claim ITCs for the portion of the GST/HST paid on the previous or last purchase of the house that relates to your B & B operation.

On any later sale of your house, you would have to charge the GST/HST only on the price attributed to the portion of the house or property used in your B & B operation and not on the portion in which you live. For additional information, refer to paragraph 43 of GST/HST Memorandum 19.4.2, Commercial Real Property – Deemed Supplies.

Closing B & B operations and beginning using your house primarily as your personal residence

If you are a registrant and you close your taxable B & B operations and begin using your house primarily as your personal residence (assuming you were not previously using it primarily as your personal residence while operating your B & B establishment), you are treated as if you had sold and repurchased the part of the house formerly used in the B & B operation. You incur a tax liability based on the fair market value of the portion of the house or property that had been used in your taxable B & B operation, provided that this amount exceeds the basic tax content related to that portion. In this case, you do not incur a future tax liability in respect of your house when you de-register for the GST/HST or sell your house.

For additional information on basic tax content, refer to the Appendix in GST/HST Memorandum 19.2.3, Residential Real Property - Deemed Supplies. For additional information on calculating the tax liability, refer to paragraphs 48 and 49 of the GST/HST Memorandum 19.4.2, Commercial Real Property - Deemed Supplies, and paragraphs 90 and 91 of the GST/HST Memorandum 19.2.3, Residential Real Property - Deemed Supplies.