Change in the Use of Your Property May Trigger GST
This is another complex topic that requires the experience of an accountant. The purpose of this post is to alert the owner that it is time to connect with their Whistler accountant. The author is a real estate agent and not an accountant.
From the Government of Canada’s website, “Changes in the Use of Your Property: When there is a change in use of a property you have, you may be considered to have sold all or part of your property even though you did not actually sell it. The following are some sample situations:
- “You change all or part of your principal residence to a rental or business operation
- “You change your rental or business operation to a principal residence
“Every time you change the use of a property, you are considered to have sold the property at its fair market value and have immediately reacquired the property for the same amount. You have to report the resulting capital gain or loss (in certain situations) in the year the change of use occurs.
“If the property was your principal residence for any year you owned it before you changed its use, you do not have to pay tax on any gain relating to those years. You only have to report the gain relating to the years your home was not your principal residence.”
GST Number
Once an owner generates $30,000 in gross revenue, the property must register for a GST number. This GST number alerts the Canada Revenue Agency that you may be running your property as commercial not residential. However, it is not as simple as that because a house in Kadenwood can exceed $30,000 in gross revenue really quickly with only a few nights being rented. However, a few nights does not a commercial business make. This is where you need a Whistler accountant to explain your situation to the CRA.
Note: The $30,000 does not have to come from one source. It is all about gross income. For example, the owner of a property may have a fledgling art practice on the side and have earned $5000 this year from selling art. That contributes towards the $30,000.
Whistler Examples of Change of Use
Note: The following are examples. Your Whistler accountant may be able to present your file to the CRA in a manner that would question whether you actually have enacted a change of use. This post is to draw your attention to the potential problem. This post was written by a realtor, not an accountant.
Example 1) You buy a residential property that is also zoned for nightly rental, and like the sellers, you are going to keep the property residential and not rent it out. However, you later decide that you need to rent the property out and earn as much income as you can. By changing from residential to commercial, you have now enacted a change of use. If you hold this information from your accountant, which is never advisable, this may not affect you until you come to sell your property.
If you decide to rent it out for a few years and then decide to change it back to being residential that is another change of use. It does not seem that alternating renting out the property with a year of residential can occur without some form of financial penalty. It is essential that you speak with your accountant to determine your GST status before making any changes to usage.
Example 2: You buy a Whistler property zoned for nightly rental. The sellers have been earning income from their property and you want to do the same. Therefore the GST is deferred, meaning the buyer does not pay GST on the sale price. You must obtain a GST number from the Government before the completion date.
When you obtain your GST number you are telling the Canada Revenue Agency (CRA) that yes, you are going to run this property as a commercial property. Later, the family situation changes and you end up using the property for the family rather than rent it out. Therefore, you are in effect breaking your agreement with the CRA. You have enacted a change of use. The CRA may come calling and you may owe GST on a percentage of personal use. This calculation of what you might owe can only be determined by your accountant.
What may happen is that the CRA who has lots of examples of nightly rental properties in Whistler, may notice that your revenue is not what your neighbour’s is and come calling. The CRA may decide that it is time you paid the GST on the fair market value of your property. This is where it gets complex and how much GST is due is determined by your Whistler accountant and presented to the CRA.
Example 3) If you have a luxury property and it is a residential property with nightly rental zoning, and one year you decide to rent it out for the Christmas and New Year period. Ten nights at $5000 a night is more than $30,000, so does this enact a change of use? No, it does not, says the local accountant. Ten nights of rentals does not make the property a commercial property. Again, your Whistler accountant needs to understand what you are thinking of doing before you decide to do it.
Professional Advice
There may be nothing wrong with enacting a change of use in your Whistler property if you understand the financial ramifications of the CRA. However, it is always advisable to talk with your accountant prior to making that decision. Get informed so you know what potential issues may arise at the time, or when you may be audited several years down the road. GST is a complex subject that seems to be constantly changing or tweaking the rules, so it is next to impossible for anyone who is not an accountant to determine how these changes affect Whistler properties. Retaining a Whistler accountant means that you are benefitting from all the other cases that accountant is working with.
If you think I would be a good fit to work with you and your family, and you are not already working with a Whistler realtor, please contact me. I look forward to hearing from you.
It’s a Good Life in Whistler!
Marion
Marion Anderson Personal Real Estate Corporation
marion@WhistlerSkiinSkiout.com (604) 938-3885