Avoiding the 13% HST (Harmonized Sales Tax) when selling your Airbnb property can be tricky because it’s based on government regulations. However, there are strategies that might help minimize or potentially avoid this tax depending on your situation. Here are a few options to consider:
1. Convert the Property to Personal Use
If you convert the property to personal use before selling it, it may no longer be considered a commercial property. This means the sale could potentially avoid HST. To do this, you’d need to stop using the property for short-term rentals and either live in it yourself or rent it out long-term (over 30 days). Be mindful that the CRA requires you to self-assess HST based on the property’s value at the time of conversion, but this could still save you from paying HST on the sale later.
2. Sell to Another Investor
If you sell your Airbnb to another investor who plans to continue using it as a short-term rental, you might be able to structure the deal in a way where HST isn’t a major factor. In some cases, HST can be included in the sale price or be passed on to the buyer.
3. Principal Residence Exemption (PRE)
If the property was your principal residence for part of the time, you could potentially claim the principal residence exemption, which may reduce or eliminate capital gains tax. While this doesn’t directly affect HST, it can lower your overall tax burden. To qualify, you would have had to live in the property yourself for part of the year.
4. Sell Shares of a Corporation
If your Airbnb is owned under a corporation, one potential strategy is to sell the shares of the corporation instead of the property itself. Selling shares may not trigger the same HST rules as selling the property directly. However, this would require the property to be held by a corporation, and the buyer would need to be open to buying the company instead of just the property.
5. Use the Small Supplier Exemption (Under $30K)
If your short-term rental income over the past 12 months has been under $30,000, you might qualify as a small supplier, which could exempt you from having to charge HST on the sale of the property. Keep in mind, though, that this only works if your income has consistently been below this threshold.
Final Thought: There’s no outright loophole to completely avoid the 13% HST if it’s required, but by converting the property to personal use or exploring the other options mentioned, you might be able to reduce or minimize the impact. Always consult with a tax advisor to ensure you’re following the correct rules and getting the best possible outcome for your situation.
Contact me if you are thinking to buy or sell your property
Karly Castaneda
Your Trust Realtor
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