In recent months, condominiums across Toronto have been posting reminders to residents that short-term rentals are not allowed. This has been triggered mainly by the growing number of users carrying out this type of transactions online and by the expected demand for accommodations as the 2015 Pan Am games grow closer.
As residents, we might find these reminders annoying but many of us have not considered the additional risks involved and that are not so obvious:
1. Insurance coverage: Condominium properties are normally zoned and insured for single-family residential use only. Unless otherwise declared to the insurer, a different use may void insurance coverage for damages arising from fire, water damages and/or third party liability.
2. CRA penalties for unreported income: As short-term rentals continue to be scrutinized, there is a risk that systematic and continuous use of a unit for short term purposes may be subject to inquiries.
3. Property tax impact: A condominium unit is subject to an annual residential property tax. If its use is alternately deemed as commercial due to short-term rentals, the applicable tax for the property may be increased.
4. HST: The resale of residential units is free of HST. Should a condominium unit be deemed and zoned commercial because of its use, HST may be added on top of the sale price, making it more expensive and less attractive to a potential buyer.
5. Criminal activity: As users of short-term rentals in condominium units rarely register with Property Management, their presence goes unnoticed. Well beyond the innocent traveler, this exposes the condominium and building residents to potential criminal activity in the forms of prostitution, identity theft, drug distribution and use, storage of stolen property.
Other than the fines and legal fees indicated by Property Management, these are important aspects that could directly affect your property if rented on a short-term basis. Keep them in mind when considering the rewards and risks that may derive from such use.
Jose Castillo & Claudia Pardo
RE/MAX Hallmark Realty Ltd.