Jared Pilon
The opportunity to create additional income by renting your property or basement suite through Airbnb or similar platforms has become increasingly popular in recent years. If you are generating income through Airbnb, it is important to understand your tax & GST/HST considerations, reporting requirements and the expenses that can be applied against this income. The following guide will touch on these and more and help you get on the right track with respect to short-term rental income.
Reporting your Airbnb Income on a Canadian Tax Return
Income earned through Airbnb (or similar platforms) is considered taxable income in Canada. As such, it needs to be reported on your applicable tax return. Based on the nature of your operation, this income can be classified into one of two ways, rental or business income.
If you are simply collecting rent and providing basic services such as heat, light, parking and other utilities, your income will be classified as rental income. If you provide additional services such as meals, cleaning, security, and others, your income may be classified as business income.
Airbnb Expenses
As with any rental or business operation, you can deduct expenses against revenue earned through Airbnb and similar platforms.
Expenses that may apply to your property are as follows:
- Mortgage interest
- Property taxes
- Condo fees
- House insurance
- Repairs
- Utilities
- Advertising expenses
- Furniture & supplies
- Cleaning services
If you are only renting out a portion of your house (basement suite, etc.) you are only allowed to deduct the applicable portion of the expenses associated with the rented area.
It is also important to ensure that your property is compliant with all provincial and municipal laws and regulations as the federal government has proposed the denial of applicable expenses if a property owner is non-compliant with said laws.
Capital vs. Current Expenses
The above-noted expenses are classified as ‘current expenses’ in that you incur them in the current taxation year and report a deduction in that same year.
Capital expenditures are different in that you incur the cost of renovations, additions, or substantial repairs to improve the property beyond its original state. These costs are added to an applicable tax pool and then depreciated over a period of time, somewhat in line with their useful life.
For tax purposes, depreciation is called capital cost allowance or CCA. The CCA rate that applies to your capital expenditure will depend on the type of property purchased and the year in which it was purchased.
Even if you choose not to claim CCA on certain capital expenditures, it is important to track these costs as they will have an impact on your tax liability when you eventually sell the property.
If you are renting a portion of your personal residence, do not claim CCA on the building as this can void your use of the principal residence exemption.
If you would like to claim CCA on your rental property, it would be advisable to speak with Legacy Accounting to ensure it is done correctly.
GST/HST Implications
GST/HST does not apply to long-term residential rent. Long-term is defined as a term in excess of 30 days. If you are renting your property (or a portion thereof) for terms less than 30 days, GST/HST would apply to the revenue being collected. If your gross rental income exceeds $30,000 in a 12-month period, you would be required to register for and collect GST/HST.
Airbnb collects and remits GST/HST on behalf of property owners who do not have an obligation to remit themselves. Therefore, if you exceed the $30,000 threshold and are required to register, it is important to provide your GST/HST number to Airbnb so they can adjust their invoicing accordingly.
Even if you do not meet the small supplier threshold ($30,000 in a 12-month period) it may be beneficial to register for a GST/HST account as this would allow you to claim input tax credits (ITCs) for GST/HST that you pay on expenses related to your rental/business property. Again, ITCs need to be prorated in accordance with the applicable rental use of the property (if applicable).
Capital Gains
As mentioned before, it is important to consider the use of the principal residence exemption with respect to your property. CCA should never be claimed if a principal residence exemption can be claimed in the future.
If you convert your entire residence from personal use to income producing or vice versa, you will have been deemed to have a change in use per the Income Tax Act and will be required to report the disposition on your tax return.
It is important to track the underlying capital costs of all your properties to ensure that you are reporting any applicable change in use disposals accurately as the deemed proceeds on change of use are equal to fair market value (FMV).
Additionally, if a property is rented out for at least 90% of the time in periods shorter than 60 days, the property may no longer qualify as a ‘residential complex’ therefore requiring the eventual sale to be subject to GST/HST.
Insurance
It is important to ensure that you have the correct insurance coverage in place if you intend to rent your property out via Airbnb or other similar platforms. Not all policies cover short-term rentals and may require you to purchase additional coverage or make adjustments to the policy.
How to Minimize your Airbnb Tax Liability
Filing your tax return in accordance with the Income Tax Act is necessary. However, there are a number of options you can consider to lower your tax liability associated with the income you generate through Airbnb.
Deductions: A number of ‘current’ and ‘capital’ expenditures have been noted above in this article. Ensure you are tracking these and getting full value for the expenses you incur to generate revenue. If unsure about a particular cost, ask Legacy Accounting for clarification.
Incorporation: This option would not apply to your personal residence but could apply if you have additional properties and are able to meet all local permit and licensing requirements. If your short-term rental operation qualifies as a business due to the services that you provide, you may be able to take advantage of small business tax rates within a corporation. It is imperative to speak with Legacy Accounting before incorporating to ensure you structure your operation correctly.
Documentation: As with any other business, it is important to track and maintain accurate records. Not only does this make tax return preparation easier, but it is required by CRA as they can audit/review your records to validate revenue/expenses.
Conclusion
Making use of Airbnb and other similar platforms can be an effective way to earn additional revenue. With that said, it is important to speak with Legacy Accounting prior to commencement of your short-term rental operation. Concerns with respect to tax, GST/HST and liability are varied and can have significant negative impacts if not planned for correctly. It is important to have a professional on your team that is up-to-date and looking out for your best interests. Please contact us at for one-to-one advice with respect to your Airbnb venture.
Don't forget to check out Episode 040 of the Tax Talk Podcast for an in depth discussion on all things Airbnb along with some insight from local Central Alberta Realtor, Bryce Kander, with respect to Airbnb market trends & tips for maximizing your Airbnb return on investment!
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Posted: 6/22/24
