How the New BC Rules Affect Short-Term Rentals
The new regulations in British Columbia will impact residents and non-residents alike. These measures, designed to alleviate the province's housing shortages, are set to shift the rental market dynamics. As of May 1, 2024, British Columbia is clamping down on transient rentals to drive these properties into long-term residential options.
British Columbia has implemented regulations that limit short-term rentals to primary residences, along with either a secondary suite or an accessory dwelling unit (ADU), in numerous communities across the province.
This requirement pertains to properties located in:
- Municipalities with a population exceeding 10,000.
Some specific areas or types of accommodation are exempt from the main requirement, including:
- The 14 resort municipalities
- Municipalities with populations under 10,000 (unless adjacent to larger municipalities)
- Electoral areas of regional districts
- Agri-tourism accommodations
The implications of this are vast. New regulations aim to restrict the rise in short-term rental properties and increase available housing for residential purchase or long-term rental use. Anyone who doesn't adhere to these rules may be looking at hefty fines and penalties. Those with existing short-term rental properties are now engaged in a complex financial situation, determining what to do with their properties and facing the GST Tax Trap.
What Is the GST Tax Trap?
As owners of short-term rental units in British Columbia gauge the effects of the new provincial legislation, a crucial question arises: What options do you have for your existing property?
You may consider transitioning your property to a long-term rental to allow you to continue to cover the carrying costs of your investment. Or, possibly, you may determine that a long-term rental is not something you would like to pursue, and you may look to list your property for sale. Then, there are the owners who may consider disregarding the new legislation altogether and continue to rent their properties on a short-term basis. Before making any of these decisions, you should understand that GST tax traps are waiting here.
The GST trap is that no matter if you are registered for GST or not, one of the following will apply:
- GST will apply where you sell your short-term rental property, impacting the selling price you will be looking to achieve or
- GST will apply where you convert your short-term rental to residential or long-term rental use.
The final trap is trying to avoid this by maintaining your short-term rental operations. If you want to avoid selling or changing your short-term rental, new legislation at the federal level denies any deductions for short-term rental where you are not in compliance with provincial or municipal laws. Effective January 1, 2024, this legislation results in 100% of your short-term rental income being taxable, which can be a significant tax hit.