Are you deciding between serving as a landlord for a fixed-term rental, utilizing Airbnb, or selling your property? The most suitable option hinges on several factors.
Since the start of the pandemic, landlords in Ontario have been facing significant delays at the Landlord Tenant Board (LTB). As a result, many are considering switching to short-term rentals to avoid the LTB process or even selling their properties altogether. However, it's crucial for landlords to carefully weigh the pros and cons of each possible solution before deciding.
Ottawa's short-term rental market is booming, offering a promising landscape for property owners exploring new income opportunities.
The rising costs of property maintenance and conflicts with tenants at the LTB have been a source of financial strain for many long-term rental property owners. However, a recent LTB decision has brought a glimmer of hope. It clarifies that a Swiss family staying as long-term guests in a Toronto Airbnb property is not legally considered a tenant under the Residential Tenancies Act (RTA). This game-changing ruling, based on the definition of a tenant involving paying rent for the right to occupy a rental unit, opens new income opportunities for Airbnb hosts. While this ruling is not a universal exemption, and the situation in different cities may differ due to local regulations, it's a positive step forward for property owners in the short-term rental market, offering a sense of reassurance and hope.
Sharing Kitchen or Bathroom
Section 5(i) of the RTA exempts rental agreements if the property owner or an immediate family member shares a kitchen or bathroom facility with a renter.
There are no specific guidelines for terminating this rental arrangement because it is exempt. However, common law practices do apply. It is recommended that landlords give notice equal to the rental period—one week's notice for a weekly tenancy and one month's notice for a monthly tenancy.Â
The property owner should inform the renter/occupant in writing about their intention to terminate the rental agreement and keep a copy for their records. No specific form is required to give notice of vacate. However, it is recommended that the owner specify the date by which the occupant/renter must leave the premises. The owner should also advise that the rented premises are exempt from the Residential Tenancies Act because facilities are shared with the owner or members of the owner's immediate family.
Essential Factors to Evaluate Before Embarking on Airbnb Ventures in Ottawa
1. New Bylaw for short-term rentals
In response to the surging trend of short-term rentals, Ottawa introduced a new bylaw in June 2022 to regulate accommodations rented for less than 30 days. This bylaw, designed to ensure compliance, requires hosts offering temporary lodgings to complete a simple registration process. This can be done by filing an application form or applying online.
The necessary documentation includes proof of primary residence, shown through the address on your Ontario driver's license or identification card, evidence of ownership or lease, proof of insurance, and a floor plan indicating the unit's square footage. Additionally, a declaration agreeing to comply with all short-term rental bylaws is required for registration. The current fee for a 2-year permit is set at $112.
To be eligible for this program, individuals must be at least 18 years old and reside in areas where zoning bylaws permit short-term rentals. In urban and rural areas, individuals can rent out their principal residence as defined by the City of Ottawa. In rural areas outside villages, owners of second homes can apply for a separate cottage rental permit to rent out a vacation home, apartment suite, or coach house. Ottawa residents are entitled to apply for one short-term rental and one cottage rental permit.
2. New Policy to Crack Down Short-Term Rentals
The impact of short-term rentals on Canadian housing is concerning. In 2020, these platforms kept 18,900 homes off the market in Montréal, Toronto, and Vancouver, limiting renters' housing options.
In response, the federal government has proposed tax changes in the 2023 Fall Economic Statement to tackle this issue. These changes aim to incentivize non-compliant short-term rentals to transition back to the long-term housing market and assist provinces and territories in regulating short-term rentals. These changes will take effect on January 1, 2024, and will deny income tax deductions for short-term rentals that do not comply with provincial and municipal laws.
Implementing this measure aims to remove the financial incentives for short-term rental operators who do not comply with regulations, ultimately enhancing the long-term rental availability for Canadians. It is highly advisable to seek guidance from legal and accounting professionals to ensure compliance with relevant laws and regulations.
3. Managing Tax for Airbnb
Managing an Airbnb can be challenging, especially regarding accounting and tax compliance. Beginning January 1, 2024, Ottawa short-term rental operators must collect and remit a monthly 5% Municipal Accommodation Tax (MAT) to the Ottawa Gatineau Hotel Association (OGHA). Smaller establishments can request permission from the city to make quarterly reports. Additionally, all hosts must maintain an insurance policy with a liability limit of at least one million dollars.
Furthermore, the Canada Revenue Agency (CRA) has established specific rules for reporting Airbnb rental income. All income generated from an Airbnb rental must be reported to the CRA in your tax return. While you can deduct expenses related to that income, there are limitations. You can deduct qualified Airbnb operating expenses to offset the excess income reported from your venture, and it is crucial to keep track of all your receipts. Non-compliant properties offered for rental periods of less than 90 consecutive days would be exposed to the denial of expenses.
If you offer additional services to your guests, such as meals or laundry, it's essential to consider the implications that may affect your income tax payment. The CRA may need to review this information, so providing evidence or supporting documents is crucial. In the Canadian tax system, it's the taxpayer's responsibility to substantiate their activities. Additionally, the size of your home determines the number of guests you can accommodate, with a maximum of 10 guests and two people per bedroom.
4. Remitting GST/HST
Airbnb hosts must remit GST or HST to the CRA if the rental period is fewer than 30 days and the rent is more than $20 per day, while GST/HST is not charged on long-term residential rentals. Remitting GST/HST involves registering for a GST/HST account with the CRA, collecting the tax from guests, and filing regular tax returns. However, if Airbnb's revenue was less than $30,000 in the previous year or any calendar quarter, you do not have to register for GST/HST. It's important to note that these tax regulations may vary depending on the jurisdiction, so consulting with a tax professional is advisable to ensure compliance.
Selling Property
The Canada Mortgage and Housing Corporation (CMHC) 2024 report predicts a housing market decline due to increased interest rates, making it difficult for builders, developers and home buyers to secure financing. There is speculation that interest rates may decrease, with predictions pointing to a decrease in June 2024, but they are not expected to fall significantly. According to the WOWA 2024 report, the Ontario housing market continues to experience a mix of trends with various activities in different cities. Some regions have modest growth, while others are experiencing declines. Overall, Ontario has become very unaffordable over the past 15 years.
Rental Market
Despite government efforts to increase rental property supply, the rising demand for rental homes will not be met due to a weak economic outlook, inflation, and high interest rates, making homeownership unaffordable, especially in Ontario. As a result, rents will continue to increase, and vacancy rates will decrease.
Conclusion
Before starting an Airbnb hosting, becoming a landlord or selling your property, it's crucial to thoroughly assess the impact of new policies, tax considerations, and the complexities of the law. Each decision is a significant commitment that requires careful consideration. Ontario landlords seeking to change their property should seek legal advice from a lawyer experienced in Real Estate Law to ensure they adhere to the appropriate rules and procedures. If you have inquiries regarding the Residential Tenancies Act or the potential implications of transitioning to Airbnb, you may consider contacting Carman Feng Law Professional Corporation for further guidance.
Disclaimer
The information provided on this website is intended for general informational purposes. It should not be construed as legal advice, as the provision of legal advice is contingent upon a thorough understanding of the situation. It is essential not to disregard professional legal counsel or postpone seeking it based on any content read on this website. The use of this website does not establish a solicitor-client relationship. Should you wish to discuss your legal requirements with us, we kindly encourage you to contact our office at 613-981-6138, and one of our esteemed lawyers will be pleased to help.
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