In recent years, platforms like Airbnb have transformed the short-term rental market, creating new opportunities for property owners to earn income from their homes or vacation properties. However, while it may seem like an easy way to make extra money, renting your space on Airbnb or similar platforms comes with its own set of tax implications that every host should understand. From declaring income to deducting eligible expenses, staying compliant with Canada Revenue Agency (CRA) guidelines is essential to avoid tax penalties and maximize the financial benefits of your rental.

In this blog, we’ll explore the tax obligations associated with short-term rentals, how to report income, which expenses can be claimed, and the GST/HST rules that apply. We’ll also discuss how recent tax changes can impact Airbnb hosts, including the implications of the 2024 regulations and how to avoid common pitfalls.

Income Reporting: Short-Term Rentals as Taxable Income

According to the CRA, income earned from renting out your home or other property through Airbnb or similar services is considered rental income. Whether you rent out your space for one night, a few weekends, or longer periods, all income must be reported on your personal income tax return.

But here’s the good news: you are also eligible to deduct expenses associated with your rental activity. By claiming these expenses, you can offset your rental income, reducing the amount of tax you owe. Just remember: the CRA expects you to keep detailed records, including receipts and invoices, to support your claims.

Eligible Expenses for Short-Term Rental Hosts

Running a short-term rental isn’t free, and fortunately, you can claim certain eligible expenses to reduce your taxable rental income. Some common expenses you can deduct include:

1. Property-related expenses:
   • Property taxes
   • Mortgage interest (but not principal payments)
   • Insurance
   • Utilities (heat, water, electricity)
   • Internet and cable (if provided to guests)
   • Municipal licensing fees (for example, in Toronto and Vancouver)
2. Operating expenses:
   • Cleaning services
   • Maintenance and repairs
   • Laundry detergent
   • Snacks or toiletries for guests
   • Bedding, cutlery, and kitchen supplies
3. Other costs:
   • Locks for personal items
   • Additional keys and lockboxes
   • Furniture or other capital expenses (which may be depreciated over time)

Remember, only a portion of these expenses can be claimed based on how much of your property is used for the rental and the duration it’s rented out.

How to Calculate the Deductible Portion of Expenses

If you’re renting part of your home (such as a single room or a basement suite), you will need to calculate the proportion of your total expenses that can be deducted for rental purposes. Here’s how to calculate the deductible portion:

• Step 1: Calculate the percentage of your property used for rental purposes. For example, if you’re renting out 2 rooms in an 8-room house, then 2/8 (or 25%) of the property is used for rental.
• Step 2: Calculate the number of days the property is rented out. If you rent out your property for 60 days in the year, the percentage of time it was rented is 60/365 = 16.4%.
• Step 3: Multiply your expenses by both the property-use percentage (25%) and the rental-duration percentage (16.4%) to determine the portion of expenses that can be deducted. This ensures you only claim the amount directly related to your rental activity.

When Is Your Rental Considered a Business?

If your rental operation offers additional services like meals, laundry, or tours, the CRA might consider your rental to be a business rather than just rental income. This designation brings additional tax obligations, including the need to report your income and expenses as self-employment income rather than rental income.

If this applies to you, you will need to file Form T2125 (Statement of Business or Professional Activities) along with your personal income tax return.

GST/HST and Short-Term Rentals

One important tax consideration for Airbnb hosts is whether you are required to charge GST or HST on your rental income. According to the Canada Revenue Agency:

• GST/HST applies to rentals less than 30 consecutive days.
• Long-term rentals (for periods greater than 30 days) are generally exempt from GST/HST.
• If your rental income exceeds $30,000 in a 12-month period, you must register for GST/HST and charge the tax to your guests.

However, you may choose to voluntarily register for GST/HST even if your revenue is below $30,000. This can be beneficial as it allows you to claim Input Tax Credits (ITCs) on any GST/HST you paid on expenses related to the rental operation. For example, if you purchased supplies, furniture, or other items to set up your Airbnb, you could claim back the GST/HST paid on those purchases.

If you are registered for GST/HST, it’s crucial to keep track of all rental-related expenses where GST/HST was paid, as you can claim these back through ITCs when filing your tax return.

The Small Supplier Exemption

As mentioned earlier, if your rental income is under $30,000 in the last four calendar quarters (or in a single calendar quarter), you are considered a small supplier and don’t need to register for GST/HST.

However, if your income exceeds this threshold, you must register within 29 days of exceeding $30,000. After registering, you will need to charge, collect, and remit GST/HST on the rental income you earn.

Keep Accurate Records

The CRA requires that you maintain accurate records of your rental activity, including receipts, invoices, and a rental log or calendar. If the CRA audits you, it’s essential that you can provide proof of your income, expenses, and compliance with tax laws.

To make things easier, consider using accounting software like QuickBooks Self-Employed to keep track of your rental income and expenses. This will help you stay organized and ensure you’re not scrambling to find receipts when tax time arrives.

Planning for Taxes

When you earn income from renting out your property, taxes aren’t automatically deducted like they would be with a regular paycheck. It’s a good idea to set aside around 25-30% of your rental income for taxes to avoid surprises when time to pay taxes.

Additionally, remember that rental income could potentially push you into a higher tax bracket, which may impact other benefits or credits you receive, such as the GST/HST credit or Canada Child Benefit (CCB).

Conclusion

Renting out your property through Airbnb or other platforms can be a great way to earn extra income, but it’s important to understand the tax implications of your rental activity. Whether it’s claiming eligible expenses, understanding your GST/HST obligations, or ensuring your rental business is compliant with CRA regulations, proper planning and record-keeping are essential to optimize your rental income and avoid costly mistakes.

If you need help navigating the complexities of short-term rental taxation, it’s always a good idea to consult with a tax professional to ensure you’re fully compliant and maximizing your financial benefits.

Stay organized, keep good records, and you’ll be well on your way to managing a successful, tax-compliant short-term rental business!

Disclaimer:

The information provided in this blog is for general informational purposes only and should not be construed as legal, tax, or financial advice. Tax laws and regulations are subject to change, and the content provided may not reflect the most current laws, rules, or interpretations. It is important to consult with a qualified tax professional or financial advisor to obtain advice tailored to your specific circumstances. The information provided here does not create a client relationship, and reliance on this information is at your own risk. Always seek professional assistance to ensure compliance with applicable tax laws and to optimize your financial decisions.