Short Term Rental Restrictions in British Columbia

There have been lots of indirect tax changes related to residential property ownership in BC. If you own a residential property in British Columbia (BC) that is not your principal residence, this applies to you.

The legacy issues include local restrictions on short-term rentals, BC’s Speculation and Vacancy Tax (SVT), the federal Underused Housing Tax (UHT), and Vancouver’s Empty Homes Tax. However, this article focuses on new BC changes, proposed federal income tax changes, and the GST impact resulting from these rules. 

In mid-October 2023, BC introduced important changes regarding restrictions on short-term rental properties. The federal government, in its November 20, 2023 Fall Economic Statement, subsequently announced income tax measures to help enforce these restrictions. The collective efforts of federal, provincial, and local governments aim to address the housing affordability crisis by discouraging property speculation and encouraging long-term residential rentals. 

BC’s new rules on short-term rentals, effective October 16, 2023, aim to enforce local restrictions through increased fines and penalties. Short-term rental properties listed on platforms like Airbnb and others are affected, with exemptions for certain categories of properties, including most First Nation’s lands, motels, hotels, certain resort areas, etc. The rules also introduce a provincial short-term rental registry, information sharing amongst the province and local municipalities with restrictions, and compliance measures. 

Despite these efforts, the impact of these various indirect taxes on the desired behaviors, such as returning housing units to the long-term rental market, remains uncertain in the medium term. Short-term rental hosts now face many new challenges, and the walls seem to be closing in due to a combination of taxation and regulation.   

The conversion of short-term rental properties to long-term residential rentals poses unintended GST/HST consequences. Owners may face a significant GST/HST bill when changing the use of their property. This financial burden, not anticipated by regulators, adds complexity to the already challenging landscape of indirect taxes. 

The federal government’s proposed income tax measures, effective January 1, 2024, aim to deny income tax deductions for expenses related to non-compliant short-term rentals. In provinces and municipalities where short-term rentals are prohibited or restricted, deductions will not be allowed for owners that do not comply. The federal government also plans to allocate $50 million over three years to support enforcement actions. 

If property owners comply and convert to long-term rentals, many BC indirect taxes cease to apply, and regulatory restrictions are lifted. Owners will no longer need to navigate local and regional compliance issues, federal UHT reporting, or potential income tax changes. Compliance obligations, such as BC PST registration, may also be eliminated, providing relief to property owners. 

However, de-registering for GST/HST purposes or converting to long-term rental use incurs a substantial financial cost that requires careful planning. Even if an owner is forced to sell the short-term rental, GST/HST will apply.  Owners that do convert their units to long-term rental may need to consider refinancing to cover this significant new expense. Consulting tax advisors and lenders is recommended for comprehensive financial planning and navigating all of these changes hitting short-term rental owners all at once. 

Our takeaways 

All levels of government in BC and certain other provinces, are attempting to cool the mostly nationwide housing supply and affordability crisis with multiple tools, from local regulation to provincial and federal direct and indirect taxation “sticks” and the odd carrot.  Some observers suggest that these numerous measures will fail (similar to rent controls) to move the needle on the housing supply and affordability crisis, given the current levels of immigration, high interest rates, increased demand and the actual required number of new housing units needed for Canadians and newcomers. 

At a minimum, the federal government and HST provinces should seriously consider introducing a new GST/HST rebate to assist short-term rental property owners that will be financially impacted by the change in use to long-term rental.  This would mirror the GST rebate assistance proposed in the 2023 Fall Economic Statement for multi-family builders that commence qualifying new construction between now and 2030. If not, many short-term rental owners could risk losing their investment, forced to sell (and charge GST/HST) or be forced to refinance the “GST/HST hit” and further increase the rent. 

At Achen Henderson CPAs, we help you to take the complexity out of sales taxes for builders and the construction sector. We are excited to learn about your business and how we can help. Call us today for help getting your sales and indirect tax collection and reporting “on the mark”, so that you can rest easy by ensuring your business is not offside with these indirect tax rules in BC and across Canada.