The GST/HST and the Purchase, Use and Sale of Vacation Properties by Individuals

GST/HST Info Sheet GI-025
February 2007

This info sheet explains how the GST/HST applies in situations where an individual purchases, uses or sells a vacation property. It does not deal with vacation properties acquired by persons other than individuals.

In this publication, "vacation property" means a residential unit that is purchased by an individual for:

• his or her personal use, (including use by relatives and friends);
• short-term rental use; or
• some combination of these two.

Residential units commonly used as vacation properties include detached houses, semi-detached houses, rowhouse units or townhouses, and condominium units. Vacation properties are generally located in a recreational or resort area (e.g., a ski or golf resort).

"Registrant" means a person who is registered or is required to register for GST/HST purposes.

"Short-term rental" means a rental period of less than one month of continuous occupancy.

While some vacation properties are used for exempt long-term rental purposes, this info sheet only deals with vacation properties used for short-term rentals and for personal use.

Detailed information on how the GST/HST applies to real property not specifically addressed in this publication is available in Chapter 19, Special Sectors: Real Property, of the GST/HST Memoranda Series, or by calling the toll-free number 1-800-959-8287. If you are located in Quebec, please contact Revenu Québec at the toll-free number 1-800-567-4692.

The GST/HST and the purchase of a vacation property

Generally, an individual who purchases a vacation property is required to pay the GST/HST on the purchase of the property.

New Vacation Properties

The purchase of a new vacation property (including a substantially renovated property) that is to be used as a place of residence or lodging for individuals is generally taxable where the purchase is made before any individual occupies the property as a place of residence or lodging.

Previously Occupied Vacation Properties

The purchase of a vacation property that has been occupied as a place of residence or lodging since it was constructed or last substantially renovated is taxable where the vendor has claimed input tax credits (ITCs) for the GST/HST paid or payable on the last acquisition of the property, or in respect of improvements made to the property since its last acquisition.

The purchase of a vacation property is also taxable where the property is not used primarily (more than 50%) as the vendor's place of residence and all or substantially all (90% or more) of the rentals of the property are for periods of less than 60 days (i.e., the property is operated like a hotel-type establishment, for example, it is included in a rental pool). As a result, most purchases of previously occupied vacation properties that were placed in rental pools are taxable.

If the vendor is an individual or a personal trust and is not a registrant, the purchase of a vacation property is taxable where the property is capital property used primarily in a rental-income business carried on by the vendor with a reasonable expectation of profit.

If the vendor is an individual or personal trust that is a registrant, the purchase of a vacation property is taxable if the property was used primarily in making taxable short-term rentals, even though the individual or personal trust may not be engaged in a business carried on with a reasonable expectation of profit.

Information on the meaning of personal trust is available in GST/HST Memorandum 19.5, Land and Associated Real Property. Information on whether a rental business is carried on with a reasonable expectation of profit is available in Appendix B to that memorandum.

Unless otherwise noted, the remainder of this info sheet will focus on the taxable purchase of a vacation property where the property is for use in making short-term rentals.

Should individuals register for the GST/HST before purchasing a vacation property?

Generally, an individual may register if he or she intends to purchase a vacation property for the purpose of making taxable short-term rentals.

As a registrant, an individual making short-term rentals of a vacation property is required to charge and collect the GST/HST payable on the rentals if the rent charged is more than $20 per day.

A purchaser of a vacation property is a small supplier if the purchaser's gross rental revenue from making taxable short-term rentals (and any other taxable supplies) does not exceed $30,000 in the last four consecutive calendar quarters, or in any single calendar quarter. In cases where the purchaser is a small supplier, the purchaser may register voluntarily for GST/HST purposes.

Generally, a purchaser who registers prior to purchasing a vacation property is required to pay the GST/HST payable on the purchase of the property directly to the Canada Revenue Agency (CRA) unless the purchaser is an individual who purchases a property that is newly constructed and the vendor is a resident of Canada. In this case, the GST/HST payable on the purchase must be paid to the vendor.

A purchaser who does not register is required to pay the GST/HST payable on the purchase of the vacation property to the vendor unless the vendor is a non-resident. If the vendor is a non-resident, the purchaser must pay the GST/HST directly to the CRA.

If the purchaser is a registrant at the time the vacation property is purchased, an ITC may be available to offset some or all of the GST/HST payable on the purchase of the property. More information on the availability of ITCs is included later in this info sheet.

ITCs for the purchase of a vacation property for use exclusively in making taxable short-term rentals

An individual who is a registrant is required to charge and collect the GST/HST payable on any taxable short-term rentals. As a registrant, the individual is entitled to claim ITCs for the GST/HST paid or payable on property or services acquired or imported for use in his or her commercial activities (i.e., in making taxable short-term rentals). More information on claiming ITCs is available in the guide RC4022, General Information for GST/HST Registrants.

If the individual purchasing a vacation property is a registrant, the individual may be entitled to claim an ITC for the GST/HST paid or payable on the purchase of the property.

An individual who is a registrant and who purchases a vacation property for the purpose of making taxable short-term rentals only with no personal use is entitled to claim an ITC for the GST/HST paid or payable on the purchase. If the individual became a registrant immediately before purchasing the property, the individual may claim the ITC in his or her first GST/HST return. If the individual is required to pay the GST/HST payable on the purchase of the property directly to the CRA, the ITC will offset the GST/HST payable.

If, after claiming an ITC, the individual begins to use the vacation property for his or her personal use, the individual may be required to account for the GST/HST in respect of this change in use. More information on the change-in-use rules is found under the heading "Change in use".

An individual may also claim a full ITC for the GST/HST paid or payable on the purchase of a vacation property where the property is purchased for use exclusively (90% or more) in making taxable short-term rentals with minimal personal use. More information on claiming full ITCs is found under the heading "Determining the extent of use in commercial activities".

ITCs for the purchase of a vacation property for mixed-use purposes

Vacation properties purchased for personal use are often placed in a rental pool for rental purposes when their owners do not use them for personal use.

Generally, the main purpose of a rental pool is to provide short-term, hotel-type accommodation. Under the terms of a typical rental pool agreement, a management company is hired to rent a vacation property on behalf of the property owner and to provide various services common to hotel establishments such as reservations, housekeeping, and front desk services. Owners are generally required to notify the rental pool manager of the times when they intend to use the property themselves.

An individual who purchases a vacation property primarily (more than 50%) for personal use is not eligible to claim an ITC for the GST/HST paid or payable on the purchase of the property, even if there are to be some taxable short-term rentals. If there is a subsequent decrease in personal use, the change-in-use rules may apply and an ITC may become available. More information on this topic is found under the heading "Change in use".

An individual who purchases a vacation property for use 50% or more, but less than 90%, in making taxable short-term rentals, may be entitled to claim an ITC for a portion of the GST/HST paid or payable on the purchase.

Any increase or decrease in personal use, and any corresponding increase or decrease in making taxable short-term rentals may result in additional GST/HST becoming payable or an additional entitlement to an ITC.

Determining the extent of use in commercial activities

Where an individual purchases a vacation property for both personal use and for use in commercial activities, the method used to determine the extent of use in commercial activities must be fair and reasonable, and used consistently throughout the year.

A method based on days used personally and days rented is an acceptable method for determining the extent of use in commercial activities. A method that automatically considers all unoccupied days as days for use exclusively in commercial activities would not be a fair and reasonable method.

For example, if, at the time of purchase, Dennis intends to use his vacation property for his personal use for 35 days of the year and to make the property available, through a rental pool, for rent on a taxable short-term basis for the remainder of the year, the property would not automatically be considered to be used all, or substantially all, for commercial activities. If Dennis reasonably expects that the property will be rented on a taxable short-term basis for 15 to 20 days, it would not be reasonable to say that this property is being used all, or substantially all, in commercial activities. In this case, Dennis would not be entitled to claim an ITC for the tax paid or payable on the purchase of the vacation property because it is used primarily for personal use.

All of the relevant factors should be considered when determining the extent of use in commercial activities at the time an ITC is being claimed. Factors that may be relevant include:

• Is the vacation property capable of being rented (e.g., is it suitably equipped for rental purposes)?
• Does the market for short-term taxable rentals extend throughout the year?
• Is it reasonable to expect, at the time the property is acquired, that it will be used for taxable short-term rental and not primarily for the owner's personal use?
• Will the property be available for personal use?
• What impact does personal use have on the potential for rental use?
• To what extent is the property available to rent for consideration and what are the terms of any applicable rental pool contract?
• What is the extent of the owner's personal use (including friends and relatives)?
• How often has the property been rented on a taxable short-term basis in the past?

For more information on claiming ITCs and mixed-use residential real property, refer to GST/HST Memorandum 19.1, Real Property and the GST/HST.

Change in use

A significant (10% or more) change in the extent of use in making taxable short-term rentals or a significant change in the extent of personal use may trigger GST/HST consequences under the change-in-use rules. For example, a significant decrease in the extent of use in commercial activities may require an individual who is a registrant to repay all or a portion of the ITC previously claimed (e.g., at the time of purchase).

Similarly, where an individual was not entitled to claim an ITC for the GST/HST paid or payable on the purchase of a vacation property (i.e., the property was purchased primarily for personal use), the individual may be entitled to claim an ITC under the change-in-use rules if, at a later date, the individual's personal use of the vacation property decreases so that the property is no longer used primarily for personal purposes (i.e., the extent of use in making taxable short-term rentals has increased).

For more information on the application of the change-in-use rules, refer to GST/HST Memoranda 19.4.2, Commercial Real Property – Deemed Supplies and 19.2.3, Residential Real Property – Deemed Supplies (see paragraphs 77 to 102).

Subsequent sales

In most cases where an individual has claimed an ITC for the GST/HST paid or payable on the purchase of a vacation property, any subsequent sale of this property by that individual is taxable. Sales of similar vacation properties where the individual had not claimed an ITC may be exempt. Owners of vacation properties should be aware of the consequences of voluntarily registering for the GST/HST and claiming ITCs.

For more information on determining whether the sale of a vacation property is taxable, refer to the information under the heading "The GST/HST and the purchase of a vacation property". This information applies to both sales and purchases of vacation properties.

Where the sale of a vacation property is taxable, the individual (vendor) may be entitled to claim an additional ITC or rebate. In Example 7, Evelyn was entitled to claim an ITC equal to 56% of the GST/HST paid on the purchase of her condo. Also, as a result of making a taxable sale of her condo, Evelyn may be entitled to claim an additional ITC up to a maximum of 44% of the GST/HST paid at the time of her purchase. For more information on calculating this additional ITC, refer to the Appendix to GST/HST Memorandum 19.2.3, Calculating the Real Property Credit.