Selling an Airbnb Condo? Why the CRA May Want a Cut — 1351231 Ontario Inc. v. The King, 2025 FCA 53

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If you’ve ever thought about turning your condo into an Airbnb and then selling it, a recent Federal Court of Appeal case should make you pause. In 1351231 Ontario Inc. v. The King (2025 FCA 53), the Court confirmed that GST/HST can apply on the sale of a condo that had been used for short-term rentals — even if the property was originally a “regular” residential unit.

This case is a wake-up call for property investors and everyday owners dabbling in short-term rentals.

What Happened?

• A numbered company in Ontario bought a condo in 2008.
• For years, it was leased long-term (over 60 days at a time).
• In 2017, the owner switched to Airbnb-style rentals — short stays, often less than a week.
• The condo was sold in 2018, and no GST/HST was added to the sale price.
• The CRA stepped in, assessing about $77,000 in GST/HST on the sale.

The owner fought back in Tax Court — and lost. They appealed to the Federal Court of Appeal — and lost again.

Why Did the Court Say GST/HST Applied?

Normally, when you sell a used residential condo in Canada, no GST/HST applies. But there’s an important exception in the tax rules:

• If the property has been used like a hotel or motel,
• And most rentals are under 60 days,

then the unit no longer counts as a “residential complex.” That means the sale is taxable.

Because this condo was actively rented short-term right before the sale, the Court said it fell into the “hotel-like” category. Result: GST/HST applied to the full sale price.

Why This Matters for Investors?

1. Airbnb Can Kill Your Tax Exemption
   Even a short period of Airbnb-style use can turn your condo into a taxable property when you sell.
2. Big Surprise Tax Bill
   In Ontario, 13% HST on a $600,000 sale is nearly $69,000 — enough to wipe out profits.
3. It’s About Timing
   Courts look at how you used the unit at the time of sale, not how you used it over the years.
4. Buyers Beware
   If GST/HST applies but isn’t written into the purchase agreement, the seller may still be on the hook. But disputes can get messy.

What Should Property Owners Do?

• Talk to a Tax Advisor Early: Before switching from long-term to short-term rentals.
• Keep Records: Document the length of leases and how the property was used.
• Plan for Tax on Sale: Factor in potential GST/HST costs when calculating returns.
• Negotiate Carefully: Make sure purchase agreements clearly state who is responsible for GST/HST.

The Bottom Line

The decision in 1351231 Ontario Inc. v. The King makes one thing clear: Airbnb isn’t just a side hustle — it’s a tax game-changer.

If you own an investment property, especially a condo in a hot urban market, think twice before flipping it after running short-term rentals. The CRA is watching, and the courts are backing them up.

👉 Main Takeaway: Short-term rental income can be attractive, but the hidden GST/HST cost on sale may eat into your profit more than you expect. Plan ahead, and don’t get caught by surprise.