Change in the Use of Your Property May Trigger GST

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.”

Whistler Examples of Change of Use

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. Or, you are going to rent it out but will not exceed the threshold of $30,000 gross revenue. This threshold is for all businesses in Canada, over $30,000 gross revenue the business is deemed commercial.

However, you later decide that you need to rent the property out and earn as much income as you can. You have now enacted a change of use. This may not affect you until you come to sell your property and GST will now be due on the property for the buyer who wants to use it solely as a residential property, or a residential property with under $30,000 gross revenue.

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.

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 Government of Canada (GOC) that yes, you are going to continue 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 GOC. You have enacted a change of use.

Example 3) In Whistler homeowners who had residential but not nightly rental zoning decided to rent out their homes on Airbnb and VRBO. In Whistler, you must apply for a business license from the RMOW to participate in nightly rentals. In 2023 the BC Provincial Government ended “illegal nightly rentals”, meaning residential properties renting out rooms unless licensed to do so. However, those who took advantage of the Airbnb and VRBO types of markets, these homeowners enacted a change of use. The CRA is charging each homeowner 5% GST on the fair market value of their property. This situation was rampant in Vancouver as the City of Vancouver did not issue business licenses similar to the RMOW.

Professional Advice

There may be nothing wrong with enacting a change of use in your Whistler property, if you understand the financial ramifications with 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.

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