The purchase and use of vacation properties come with a unique set of considerations when it comes to the Goods and Services Tax (GST). In this blog post, we'll break down key information to help individuals better understand how these taxes apply to vacation properties.
Defining Vacation Properties
A vacation property, in this context, refers to a residential unit purchased by an individual for personal use, short-term rental, or a combination of both. Common examples include detached houses, townhouses, and condominium units, typically situated in recreational or resort areas such as ski or golf resorts.
GST and Purchase of Vacation Property
Generally, individuals purchasing a vacation property are required to pay GST on the purchase. For new vacation properties, the tax is applicable if the purchase is made before any person has occupied the property. For previously occupied properties, GST may apply if the seller has claimed input tax credits or if the property is not used primarily as the seller's place of residence.
To Register or Not to Register
Generally, an individual may register if he or she intends to purchase a vacation property for the purpose of making taxable short-term rentals. A purchaser who does not register is required to pay the GST 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 directly to the CRA.
ITCs for Purchase of Vacation Property
An individual who is a registrant is required to charge and collect the GST payable on any taxable short-term rentals. As a registrant, the individual is entitled to claim Input Tax Credits (ITCs) for the GST paid or payable on property or services acquired or imported for use in his or her commercial activities.
Changing Use and GST Consequences
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.
Subsequent Sales and GST
In most cases, if an individual has claimed ITCs on the purchase of a vacation property, any subsequent sale of that property is taxable. Understanding the implications of voluntarily registering for GST and claiming ITCs is crucial for property owners.
Understanding the nuances of GST on purchase of short-term rental property and vacation property is essential for individuals purchasing a rental property in areas such as Whistler.