Executive Summary: Key Legal and Evidentiary Issues

• The case hinges on whether the sale of a condominium unit was a taxable supply under the Excise Tax Act.

• Central to the dispute is the definition of "residential complex" and the application of a statutory carve-out.

• Short-term rental history through Airbnb affected the property's eligibility for tax exemption.

• The Tax Court found that the property resembled commercial lodging like hotels or inns.

• Appellant argued that the Tax Court erred in interpreting the nature and duration of the leases.

• The Federal Court of Appeal upheld the lower court's interpretation and dismissed the appeal with costs.

Facts and outcome of the case

Background of the dispute

1351231 Ontario Inc., the appellant, owned a condominium unit in Ottawa that it had initially leased under long-term arrangements exceeding 60 days. In February 2017, it changed its rental strategy and began offering the property on Airbnb through a series of short-term leases. This shift continued until early 2018, during which time the company earned substantial income from the short-term rentals. On January 24, 2018, the appellant entered into a purchase and sale agreement for the condominium, which closed on April 11, 2018. No GST was collected or remitted on the sale.

When reviewing the appellant’s annual GST filings for the period between June 1, 2017, and May 31, 2018, the Canada Revenue Agency assessed the company for $77,079.64 in GST/HST, claiming the sale of the condominium was a taxable supply. The appellant disputed this, arguing that the property qualified as a "residential complex" and was therefore exempt under the Excise Tax Act.

Tax Court decision

The Tax Court of Canada ruled against the appellant. The court determined that the property did not qualify as a "residential complex" under subsection 123(1) of the Excise Tax Act due to the short-term nature of its leases. It concluded that the property fell within a statutory carve-out that excluded properties used in a manner similar to hotels, motels, or other temporary lodgings, particularly where substantially all leases were for periods of less than 60 days.

Appeal to the Federal Court of Appeal

1351231 Ontario Inc. appealed the Tax Court’s decision to the Federal Court of Appeal, arguing that the judge had misapplied the law in determining the property's use and the nature of the leases. However, the Federal Court of Appeal found no reviewable error in the Tax Court's decision. It reaffirmed that the property met the criteria of the carve-out, particularly because it had been rented almost exclusively through short-term arrangements akin to hotel stays.

Outcome of the appeal

The Federal Court of Appeal dismissed the appeal and awarded costs to the respondent, His Majesty the King. The court confirmed that GST/HST was correctly assessed on the sale of the condominium and that the appellant's use of the property disqualified it from the tax exemption for residential complexes.