Airbnb Rental Income Tax Considerations
First question: Is this considered a rental income or business income?
If you are considering getting into the Airbnb business, one of the first things you will need to figure out is whether this will be declared as a rental or as a business income.
However, in the majority of cases it will most likely be considered as a rental income, in which a property owner would be required to file a Statement of Real Estate Rentals (T776) along with his annual Income Tax Return.
However, if the operation is more of a bed and breakfast model, in which other services are provided, such as meals, laundry etc., this would then be considered as business income, in which a different tax form (T2125 Statement) would be required to fill out along with your annual Income Tax Return.
Operating an Airbnb and declaring it as business income, would have the same implications as self employment income, in which the owner will be required to make payments for CPP/QPP, QPIP, and health fund contributions.
In the event that you are using Airbnb or VRBO to rent out your home, or renting out your basement apartment, all income will have to be reported to the CRA and Revenue Quebec. At the end of each year you will receive a statement of income issued by Airbnb to help you correctly report your income.
Even though you will have to declare this as rental income when doing your taxes, you will also be able to deduct any expenses you incurred while renting out your location just like any other business.
Expenses that can be used to offset Airbnb income
It is important to understand that Airbnb does not handle the income tax deductions that you will ultimately pay to the government. Therefore, whatever amount you earned from Airbnb, you will need to report it as business or rental income and pay those income taxes.
There are many expenses that can be used as tax deductions, such as mortgage interest, property taxes, utilities, hydro, heating costs, supplies and any other related expenses. Yet it is important to be aware of what expenses can be deducted, and what cannot be deducted as not everything can be written off.
For example, if your property is available for rental all year round, you can only deduct that portion that’s used for the actual rental.
To explain it more clearly, lets assume that you rented out your basement which equals to 50% of your total property’s square footage, this would entitle you to be able to deduct 50% of the total building expenses, and only those related to the rental, even if you are not gaining revenue from it throughout the entire year.
This in the case the 50% of the house was available for rent all year long, even that you only rented out few times during that year.
If your property is available to be rented out all year round, and yet even though you did not generate revenue from it all year round, the CRA will still consider that your intention, all year round was to rent and therefore you will be eligible to claim 50% of your expenses just the same.
List of eligible expenses for Airbnb:
- Property taxes
- Home Insurance costs
- Utilities (gas, electricity, water)
- CITQ fees
- Any Municipal annual licensing fees where applicable
- Accounting and other professional fees
- Mortgage interest included in your mortgage payments
- Internet costs
- Maintenance / repair costs (to the rented space only)
- Cleaning services (for the rented space)
- Sheets / bedding
- Any extra kitchen items from cutlery to plates and cups and appliances used by renters
- Costs for new locks and keys
- Host gifts like a bottle of wine, flowers, snacks, or books for guests to take.
It is important to consult with your insurance provider if you are considering renting your property.
It is important to be sure that your insurance company will cover the costs involved in regards to the risk of renting out the property. It is possible that your home insurer will not be OK with it, which can create its own problems and implications.
Therefore, even though Airbnb does offers insurance, it may not be adequate coverage as it is only secondary to your own.
Paying GST/HST/QST on your Airbnb rental income
Any business that you own that generates over $30,000 per year, regardless if it is from Airbnb or some other enterprise, you will be required to register and pay for GST/HST/QST.
As Airbnb does not collect nor charge taxes (GST/HST/QST) to the renter, you will be responsible for collecting and declaring these amounts from the renter when remitting to the government.
However, you would only be required to collect and pay the GST/HST/QST on rentals that were for a period of 30 consecutive days or less. In the event that you rent out your property for a period that exceeds 30 consecutive days, you will not have to charge sales tax.
For reservations of less than 30 consecutive nights, Airbnb will collect and remit the Quebec Lodging Tax of 3,5% of the listing price. Therefore, you will only be responsible for the collection of sales taxes on the rentals as mentioned previously and not for the Lodging Tax.
If you are in position where you are approaching the $30,000 threshold, it would be advisable to move ahead and apply for your GST/HST/QST registration.
However, don’t let this hold you back from your rentals, simply track it, charge it, report and remit it.
You can also take advantage of the Quick Method of accounting for sales tax, if there is more benefit to you.
Will the sale of my house be affected from using Airbnb?
When it comes to reporting taxes, in regards to generating income from your property, you are effectively changing the use of your home from personal to commercial use therefore affecting the conditions of its sale.
If you have made any money from your property rentals regardless if it is through Airbnb, or traditional lease rentals, you will have to pay capital gains tax on the sale of your home or property in question.
There are many different factors that determine the amount owed on capital gains, as it varies depending on how long you owned the investment, the province where you live, and other things, however generally, capital gains income inclusion is 50% of your gross capital gain realized.
Using your house or property to generate income will also affect the sale, in whereby the transaction becomes taxable once you started to collect GST and QST on your rental income.
As far as GST / HST/QST is concerned, crucial changes will appear at the time of selling. This means that you will also have to add GST/HST/QST on top of your selling price.
This article only provides information in a general nature and is only as current as the date in which it is posted. It is not updated and therefore may no longer be current. This document should not be relied upon as it does not claim to, nor provide advice on legal or tax matters.
All tax situations are specific in nature and will likely differ from the situations that are presented in the article. It is advisable that you seek and consult a tax professional if you have any specific legal or tax questions.
This document is intended to provide general information on a particular subject or subjects(s) and this article is not an exhaustive treatment of such subject(s). In accordance, the information in this document is not intended to constitute or replace accounting, tax, legal, investment, consulting, or other professional advice or services.
Before any decision is made, or any action taken which might affect your personal finances or business, you should consult a qualified, professional adviser.