Earning extra income by allowing strangers to sleep in your home when you aren’t there is one of the wildest success stories of the sharing economy. But here we are.
Since the 2008 launch of Airbnb (and sites like HomeAway and VRBO which followed), millions of homeowners have opened their spare apartments, spare rooms, even their entire homes to the world. But what are the tax implications?
Before you invite guests to check-in, this TurboTax article is worth checking out.
- Make sure it’s legal to turn your property into a short-term rental – some cities and homeowner associations don’t allow it.
- Report both short-term rental income and deductible expenses on your personal income tax return
- Be aware of how upcoming changes to the sales tax ‘loophole’ will affect Airbnb, guests and hosts.
Is renting on Airbnb worth it?
If you’re thinking about joining the Airbnb revolution, you must also be thinking: how much money can I make?
Before counting your chickens, it pays to research whether your property is in an area with a high demand for vacation rentals. While renting on Airbnb may be more lucrative on a per-night basis than renting to a long-term tenant, there are more moving parts and operational costs to consider. Think: furnishings and linens, cleaning between guests, not to mention Airbnb’s commission (currently 3%).
Your projected occupancy rate should be high enough to absorb these costs and still come out ahead.
TIP: Make sure your short-term rental can operate legally – not only from the perspective of your housing association, condo board, or landlord, but also according to the rules and bylaws of your city.
What counts as a short-term rental?
Every city has different rules around the definition of a short-term rental. Some jurisdictions restrict stays to under 30 days while others allow stays of up to several months.
To figure out where your city stands on short-term rentals, start Googling. The popularity of home sharing means most Canadian cities – not just the big ones like Toronto, Montreal and Vancouver – spell out their policies and regulations online.
Should I incorporate my Airbnb business?
It depends on your intentions.
If you’re renting an under-used family cottage to make a little extra income, incorporating may not be worth the hassle and expense.
But if you plan to make a long-term business out of property rental, incorporation may be worth looking into. In addition to unique tax benefits, incorporating shields you from the personal liabilities (think: damage to property, guest injuries) .
More information on the benefits of incorporating here.
Do I have to pay income tax on Airbnb in Canada?
For the CRA, any income you earn by renting out your home or another property is considered rental income – even if it’s just for a night or two, now and then.
These earnings must be reported on your personal income tax return via these two forms:
Do I need to charge sales tax to Airbnb customers?
Up until recently, short-term rental platforms like Airbnb weren’t responsible for collecting sales tax on behalf of hosts. Hosts earning less than $30K a year didn’t have to charge federal or provincial taxes. But as of July 1, 2022, this tax loophole is closing.
The onus is now on Airbnb to collect and remit Goods and Services Tax (GST), Harmonized Sales Tax (HST), and/or Québec Sales Tax (QST) for all hosts.
For hosts who are registered, it’s business as usual: collect and remit these taxes to the government on your next sales tax report.
TIP: Use this CRA resource to figure out if you need to register for GST/HST.d
Once you determine if you’ll meet the annual $30K threshold, you can estimate your annual revenue similar to the example below.
For example: Eric decides to list his lakefront cottage on Airbnb during the time he isn’t using it. If he lists the cottage for $300 per night with a two-night minimum stay, he can earn $600 every weekend it’s rented. If Eric rents his cottage for 26 weekends a year, he can earn $15,600 in rental income before expenses. (2 nights x $300) x 26 weeks = $15,600.
For now, Eric can choose not to register for sales tax in his province.
How do I calculate Airbnb sales tax?
How much sales tax you charge is determined by the province or territory in which you operate.
Beyond GST/HST/QST, your guests will likely be subject to an additional occupancy tax of between 2 and 4%. Most provinces call it a Municipal Accommodations Tax (MAT). In Quebec, it’s called a Lodging Tax. In British Columbia, it’s known as the Municipal and Regional District Tax.
As a host, it’s important to get familiar with the rules and regulations of taxes.
How do I reduce my taxes on Airbnb income?
The good news about your set-up and operational costs? There are expenses that can reduce your taxable income significantly. Items like bedding and kitchenware are fully tax-deductible. Other expenses, like property taxes and insurance, are partially deductible, according to the portion related to business use.
Rental expenses you cannot deduct include your mortgage and the value of your own labour.
TIP: Be sure to keep a detailed record of your expenses in case the CRA comes knocking.
FILE WITH CONFIDENCE
Listing your property on Airbnb is relatively easy. Wrapping your head around the tax implications, maybe not so much. TurboTax software saves you time and money by finding every credit and deduction possible. Need more? 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?