Airbnb Investment Properties and Income Tax

One of the craziest success stories of the sharing economy is making extra income by letting strangers stay in your home when you’re away. However, here we are.

Since the 2008 launch of Airbnb (and the websites that followed, like HomeAway and VRBO), millions of homeowners have welcomed visitors into their extra apartments, extra rooms, and even their entire homes. What about the tax consequences, though?

Before you invite guests to check-in, this article is worth checking out.

Is renting on Airbnb worth it? 

How much money can I make? This must be on your mind if you’re considering joining the Airbnb revolution.

Check whether your home is in a region where there is a large demand for holiday rentals before putting all your eggs in one basket. Even if renting through Airbnb might be more profitable per night than renting to a long-term tenant, there are additional moving parts and operational costs to take into account. Consider the cost of furniture and linens, cleaning in between visitors, and the 3% commission that Airbnb now charges.

Your anticipated occupancy rate should be sufficient to cover these expenses while still generating a profit.

It is important to verify that your short-term rental is legal to operate, not just from the viewpoint of your housing association, condo board, or landlord, but also in accordance with the laws and ordinances of your city.

What counts as a short-term rental?

The established rules governing what constitutes a short-term rental vary from city to city. While some governments only permit stays of up to 30 days, others permit stays of many months.

Start researching to find out how your city feels about short-term rentals. Due to the popularity of home sharing, most Canadian cities—not just the major ones like Toronto, Montreal, and Vancouver—have internet norms and restrictions that are clearly stated.

Should I incorporate my Airbnb business?

The answer depends on your objectives.

Incorporating might not be worth the trouble and expense if you’re only renting out an idle family property to earn a little more money.

However, incorporation can be worthwhile to consider if you intend to turn property renting into a long-term business. Along with special tax advantages, incorporation protects you from personal obligations (such as property damage and visitor accidents).

Here is more information about the advantages of incorporation.

Do I have to pay income tax on Airbnb in Canada?

Even if it’s just occasionally for a night or two, the CRA will consider any income you earn from renting out your home or another property to be rental income.

These two forms must be used to report these earnings on your personal tax return:

Do I need to charge sales tax to Airbnb customers?

Platforms for short-term rentals like Airbnb weren’t required to collect sales tax on behalf of hosts until recently. Federal or provincial taxes were not required to be collected from guests making under $30k per year. But this tax break will end on July 1, 2022.

As of right now, it is Airbnb’s responsibility to gather and send all hosts’ Goods and Services Tax (GST), Harmonized Sales Tax (HST), and/or Québec Sales Tax (QST).

It’s business as usual for hosts who have registered: collect and submit these taxes to the government on your following sales tax report.

Use this CRA resource to figure out if you need to register for GST/HST.

When you know whether your annual income will exceed $30K, you may make an estimation of it using the example below.

As an example, Chris chooses to list his lakefront house on Airbnb when he’s not using it. He can make $600 every weekend if he rents out the cottage for $300 per night with a two-night minimum stay. Chris may make $15,600 in rental income before expenses if he leases his cottage for 26 weekends a year. 2 nights at $300 each times 26 weeks equals $15,600.

Chris can decide not to register for sales tax in his province for the time being.

How do I calculate Airbnb sales tax?

The province or territory in which you conduct business will decide the amount of sales tax you must charge.

Your visitors will probably be charged an additional occupancy tax of between 2 and 4% in addition to GST/HST/QST. It is known as a Municipal Accommodations Tax in most provinces (MAT). It is referred to as a lodging tax in Quebec. It is referred to as the Municipal and Regional District Tax in British Columbia.

It’s crucial for hosts to become informed with tax rules and regulations.

How do I reduce my taxes on Airbnb income?

What’s the good news with your setup and operational costs? There are some expenses that can drastically lower your taxable income. Kitchenware and other household items qualify for a full tax deduction. Other expenses, such as real estate taxes and insurance, are deducted in part, depending on the amount that is relevant to business use.

Mortgage payments and the value of your own labor fall within the category of non-deductible rental expense

Keep thorough records of your expenses just in case the CRA decides to check up on you.

Listing your property on Airbnb is relatively easy. Wrapping your head around the tax implications, maybe not so much. Our tax experts are standing by to answer your questions, check over your return, or even complete it from start to finish. How’s that for service?