Has your cottage become “boring” to the grandkids? Do you have a spare room that’s going to waste? If you’ve answered yes to either of these questions, you’ve likely considered renting out part (or all) of your property. With sites like Airbnb, your home or vacation property can be booked whenever it’s convenient for you. Like other, more traditional, rentals, Canada Revenue Agency (CRA) has specific rules for declaring your rental income. Here’s what you need to know about earning income from Airbnb.
By the Night or the Month – A Rental is a Rental
In the eyes of the CRA, any income earned by renting out your home or other property is considered to be rental income – even if it’s just for a night or two every once in a while. Like other types of income, the money you make from your rental must be included on your tax return. The good news is that you can deduct your expenses.
From Pillows to Property Taxes
To offset the extra income from your Airbnb venture, be sure to claim all of the related expenses. If you purchased new bedding for the spare room or provided toiletries and snacks to your cottage guests, keep your receipts for tax time.
Other eligible expenses include property taxes, insurance, heat, electricity, municipal annual licensing fees where applicable (Toronto and Vancouver have recently introduced these), mortgage interest (but NOT principal payments), cable and internet (if provided to your guests during their stay) and maintenance costs.
Keep in mind that only a portion of these expenses will result in a deduction. For example, if you rent your cottage on weekends only, you’ll need to pro-rate your utility bills. If you rent one room in your eight-room home a few times a month, a bit of math will be needed to figure out exactly how much can be used as an expense at tax time.
When is a Rental not a Rental?
When it’s a business, of course. If you offer additional services such as meals or laundry services, you may, in fact, be running a business instead of a rental venture. If this is the case, you’ll be required to report your income and expenses as self-employment income rather than rental income.
Keep Records and Plan Ahead
Keeping all of your Airbnb related info together makes tax time much simpler. Looking at a well-kept journal of your rentals is much easier than trying to sift through emails or relying on your memory. Something as simple as signing up for online billing for utilities can save time and hassle next spring.
Setting aside a portion of your Airbnb income each time you have a renter is a great idea. Even just ten percent from each renter will help lessen the hit at tax time.
Be mindful of how much you’re making overall – from all sources. Depending on your income level, that extra bit of cash from your Airbnb venture could push you over certain income limits. If you earn too much from your rental, you could be disqualified from benefit programs such as the GST/HST credit, CCB, or OAS. To learn about how an increase in income could affect your taxes, check out How Your Raise Affects your Taxes.