Tax Considerations for Airbnb Hosts

September 12, 2018


Are you looking for ways to put some more money into your wallet? If so, you may join the thousands of Canadians who are renting out their home or secondary property — using Airbnb or another online platform. Before you join this growing marketplace, you need to consider the tax implications. To help you make an educated decision, let’s take a closer look at the income tax and GST/HST considerations that affect the finances of Canadian short-term hosts.

How to report Airbnb income

Whenever you earn income from renting your home, you need to report the gross rental income and related expenses on your tax return.

For income tax purposes, a distinction is made between income from property and income from business, and it is not always easy to determine which classification applies to your rental income. According to the Canada Revenue Agency (CRA), the determination comes down to the number and kinds of services that you provide for your renters.

Usually, you will be considered to have earned rental income when you rent space and provide basic services such as heat, light, parking, and laundry facilities. In this case, the income that you earn will be considered rental income and must be reported on form T776 (Statement of Real Estate Rentals) and declared on line 126 of your personal income tax return.

If, on the other hand, you operate more as a bed and breakfast and provide additional services to your guests — such as cleaning, security, and meals — you will more likely be considered to be carrying on a business, and any income earned will have to be reported as business income on your personal tax return. As a rule of thumb, the more services you provide as a host, the greater the chance that your rental operation will be considered a business.

Do I need to charge GST/HST?

Your Airbnb rental income may be subject to GST/HST. This is because short-term housing rentals for periods less than 30 continuous days are taxable for GST/HST purposes. Long-term residential rentals are exempt from GST/HST. If short-term rental revenues (plus income from any other commercial activity you may have) exceed $30,000 in a 12-month period, you are required to register and collect GST/HST on this income. Take note that you should also determine if a provincial sales tax or other local tax/levy applies on the short-term housing rentals.

How to claim Airbnb expenses

The income tax treatment of the expenses that you incur as an Airbnb host may vary depending on whether the expense is considered a current or a capital expense:

  • Current expenses are ongoing-period expenses, such as electricity, or those that don’t provide a lasting benefit.
  • Capital expenses generally give a lasting benefit or advantage.

Renovations or repairs made to your home to make it suitable to rent and expenditures that extend the useful life of your property or improve it beyond its original condition are usually capital expenses.

Current expenses

You may claim a prorated portion of many current expenses when you rent out your home through Airbnb. These expenses include:

  • Mortgage interest
  • Property taxes
  • Utilities
  • Maintenance (such as painting or housekeeping of rental space)
  • Home insurance

If you earn rental income from a condominium unit, you can also deduct condominium fees that represent your share of the upkeep, repairs, maintenance, and other current expenses of the common property.

Keep in mind that you cannot deduct land transfer taxes, payments of mortgage principal, or the value of your own labour.

Calculating your current expenses

If you rent out your entire home, you need to calculate the number of weeks or days of the year that you hosted guests as a percentage of the total time in the year that you owned the home. You then must use that percentage to prorate your costs. For example, if you rented out your home during November and December, while you vacation in Florida, then you would be entitled to claim roughly 17% (61/365 or 2/12) of eligible expenses.

If you rent out only part of your home, you are entitled to claim the amount of your expenses that relate to the rented area of the property. For instance, using the example above, if you decided to rent out 1,500 square feet of your 3,000-square-foot house while you headed down south, you would be entitled to deduct 50% (1,500/3,000) of the expenses already prorated at 17%. Remember that you can also calculate the eligible expenses using square metres or the number of rooms you are renting in your home.

Can I recover GST/HST?

If you register and collect GST/HST on the rental income, you may be able to recover GST/HST paid on certain operating costs, such as:

  • Referral fees to a website
  • Advertising
  • Maintenance and housekeeping expenses

Capital expenses

Unlike the current expenses noted above, capital expenses cannot be deducted all at once and instead must be deducted over a period of several years as capital cost allowance (CCA). The CCA you can claim depends on the type of rental property you own and the date you acquired it. In very simple terms, you can deduct a percentage of the property's capital cost over a period of several years. Depending on the rental usage of the home, you may be entitled to a recovery on all or a portion of the GST/HST paid on capital expenses.

Caution: Renting and the long-term tax impact

Decisions made about a rental property can cause surprising results for decades into the future.

If you claim CCA on your home, you will not be able to claim the principal residence exemption on it when you sell it. As well, when you begin renting a personal property, other than incidentally or occasionally, you’re considered to have changed the use of that property for income tax purposes. As a result, there are significant income tax consequences that must be considered. Read our article Tax Q&A: Tax Planning Strategies for Cottage Owners for more information on these income tax considerations.

And let’s not forget about the significant GST/HST consequences that may also arise if you rent out your home. If your home is rented 90% or more of the time for rental periods of less than 60 days, it may lose its status as a “residential complex.” If this occurs, any subsequent sale becomes subject to GST/HST, which may come as a surprise to prospective buyers when faced with having to pay GST/HST on the purchase. However, if you decide later on to stop or scale back the rental of the home and it changes to a personal residence (or exempt long-term rental), you will need to pay GST/HST to the CRA based on the fair market value of the home when this change happens. In some circumstances, you may be able to apply for a rebate to recover some of this tax.

Keeping records

While renting out your home may seem like an easy way to generate extra income, the decision to become a host must be well informed and include a good understanding of the tax implications.

The decision also adds to your recordkeeping responsibilities. Make sure you keep detailed records of all the rental income you earn and the expenses you incur. It’s also beneficial to log your own personal use of the home throughout the year to support its use as a personal residence. You can validate your purchases and operating expenses with supporting documents such as invoices, receipts, and contracts.

For more information on getting your taxes in order when renting out a property, contact our Canadian tax services team.

The information in this publication is current as of August 3, 2018.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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