In the past few months I have listed and sold two condominium units at the base of Blue Mountain including the one shown in the attached photo.  Both properties were used by the owners but on occasion they were also rented out on a short term basis which is less than 30 consecutive days to help the owners offset their ownership costs.  In both cases I received no shortage of inquires from Buyers and or their respective REALTORS®, looking for a property that offered similar rental potential.  Some of these Buyers would use the property for themselves and rent it out on the side while others were strictly investors looking for an income property.  Regardless of the intended usage, having the ability to offer short term rental accommodation is not as easy as one would think.  Posting a rental ad on Facebook, Craigslist or any number of online sites can create problems some of which can be very costly.

In Part 1 of this blog post I outlined some of the issues that Buyers need to be aware of including municipal zoning laws and in the case of the municipality of the Blue Mountains I covered their Short Term Accommodation By-Law and licensing requirement.  In addition there are also other considerations as some properties are part of the Blue Mountains Village Association which in itself has fees and other factors that Buyers need to be aware of.

Several years ago, condo owners in the Blue Mountain Village and elsewhere near the mountain found themselves in the position where their units were going to be taxed as commercial versus than residential for property tax purposes.  Commercial property tax rates are often two to three times that of the residential rate.  This move would for example change an owner’s property tax from $3,500 per year to $8,000 or higher.  After months of negotiations with the Provincial government, condo owners in close proximity to Blue Mountain were able to have their properties revert back to residential property tax status provided they took the required steps to have the property become part of the Blue Mountain Village Association.  As mentioned in part 1 of this blog, once a property is part of the Association there is no opting out as it is registered on title to the property.  While the savings in property taxes may make it worth while considering, it should also be noted that upon selling your unit, a fee of 1% of the sale price is payable to the Association.  Example: On a $950,000 sale the fee is $9,500 and is payable by either the Seller or the Buyer.  In the case of the sale mentioned above, the Seller agreed to pay the 1% fee to the Village Association in closing.

Another and perhaps even more important consideration is the matter of HST.  In general terms HST does not apply to resale real estate but it’s not that simple and in prior posts titled “Real Estate & HST Can be Taxing” I covered this topic in three separate posts.  Whether a property is HST taxable is somewhat of grey matter versus black or white.  Further HST is an issue that appears to be going through some change when it comes to resort recreational rentals.

When someone purchases a property and completes the purchase by putting the property in a company versus their personal name, HST will almost always apply.  Using the example above, if a condo is sold at $950,000 and the sale is HST taxable, the HST owing is $123,500.  A willing Buyer may be prepared to pay the $950,000 purchase price but are they also willing to pay an additional $123,500 to cover the HST payable which was caused by the Seller?  Not likely.  A Buyer can choose to title the property in a company name that is an HST registrant but contrary to what some REALTORS® will tell you, doing so does not make the HST go away it just defers it to a later date.  If the property continues to appreciate in value then the HST owning in the future will be even higher.

Putting a property in a company name is no longer the only circumstance that can trigger HST on a sale.  When selling the condominium unit illustrated above I represented the Seller.  I had previously sold this unit to the Seller and over the years they used the property not only for their own personal use but they also had it enrolled in a rental program.  Having had a fair amount of experience in dealing with HST over the years, the rental income raised a red flag with me.  Traditionally, $30,000 in annual income has always been the amount that potentially dictated if a person(s) or business needs to become an HST registrant thereby requiring them to remit HST.  I have had clients that ran a bed and breakfast from their home and as long as they kept their income below $30,000 annually they were okay.  The same applied to short term rental properties.  In the case of short term rentals, the amount of $30,000 in rental income appears to no longer be the main factor as to whether HST applies.  Upon checking with the Canada Revenue Agency, they informed us that if a property was merely “available” to rent more than 50% of the time then the sale of that property would be HST taxable.  The word “available” is key here.  Never mind that the unit may not have been rented out or occupied by a guest(s) more than 50% of the time, the fact that it was “available” for rent is what potentially makes it HST taxable.  Example:  If you own a condominium property that you use part-time to a maximum of 50% of the time and it is “available” for someone to rent the other 50%, the sale will no doubt be HST taxable.

There are a lot of factors that may impact your decision to buy a recreational property.  These include but are not limited to the following:

  • How will you title the property, in your personal name(s) or in a company?
  • Do you want to rent it out when not being used personally?
  • Does municipal zoning allow you to rent it our short term ie: than than 30 consecutive days at a time?
  • Do you need or can you get a Short Term Accommodation licence?
  • What are the tax obligations both personal and from a property tax and or HST standpoint?
  • Is the property you are looking at part of the Blue Mountain Village Association and if so what are the cost/fees?
  • Will your insurance carrier cover any damage caused by those renting the property?

As REALTORS® we are not expected to know all the details that could affect your purchase, we are not lawyers or accountants.  We are however expected to know enough about the market overall whereby we raise questions and direct our clients if needed to obtain qualified advice from specialists in areas involving legal, accounting, insurance  issues and others.  Our very Code of Ethics in fact requites us to encourage clients to obtain expert advice when it is in their best interest to do so.

Clearly the rental landscape for short term rentals in our market area is changing.  Tax matters with the Canada Revenue Agency and recent changes and or revisions to the Blue Mountains Short Term Accommodation By-Law reflect that.  Protecting my valued clients is always my utmost priority, it’s how I earn their trust and I simply can’t put a price on that.  When discussing a potential purchase with Buyers I always clarify their intentions with respect to rentals.  Rental activity and anticipated income is not a guarantee. COVID 19 over the past year or more has affected rental activity.  Weather is also a factor and beyond our control, last winter we had a very short ski season that started late and ended early thus reducing the amount of rental income for many.  If a buyer(s) wants rental income to offset ownership costs that’s one thing but if you need rental income to help make mortgage payments that’s another matter and involves risk.  As such I suggest they speak with an accountant for some guidance.

Hopefully this post along with my prior post Part 1 has helped to clarify things with respect to resort area properties and rentals in the Blue Mountains area.  If you have any questions I am always willing to share my knowledge and experience so don’t hesitate to Contact Me.  My ultimate goal is to be your trusted adviser and to make your buying and or selling real estate experience across southern Georgina Bay everything that you hoped it would be.  Providing you with the all the facts both pros and cons is where it all starts.