Thousands of Canadians are renting out their home or secondary property using Airbnb or another online platform.
Let’s take a closer look at the income tax and GST/HST considerations.
How to report Airbnb income
- You need to report the gross rental income and related expenses on your tax return.
- 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.
- 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.
Do I need to charge GST/HST?
- 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 on an associated basis) exceed $30,000 in a 12-month period, you’re required to register and collect GST/HST on this income.
- If you purchase a new or substantially renovated house that is subject to GST/HST and is for use exclusively in short-term rentals, you may consider registering for GST/HST voluntarily before exceeding $30,000 in income.
- Considering registering for GST/HST before the closing date.
- Mixed-use properties are subject to rules that are more complex.
As of July 1, 2021, all supplies of short-term accommodation are subject to GST/HST when supplied through a digital platform with the tax being collected by either the property owner or an accommodation platform operator.
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 and must be deducted over a period of several years as capital cost allowance.
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 in order to prorate your deduction.
- If you rent out only part of your home, you’re entitled to claim a deduction that relates to the rented area of the property.
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.
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 the acquisition or improvements to the home.
Caution: renting and the long-term tax impact
- 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.
- 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 per cent 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, if you later change it back 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.
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.
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.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. Scott works closely with his clients to understand their specific needs and adjust strategies accordingly. Scott and his team take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.