Recently, many Canadians have been looking to get away from the city and enjoy more spacious living due to the imposed lockdowns. As such, individuals have been turning to accommodating sharing platforms to rent out cottages or bigger homes. For a small pocket of homeowners, this has created a boost in business and an opportunity to generate extra income. Indeed, accommodation sharing has become a lucrative business since the rising popularity of AirBnB. Whether you are operating AirBnB rental units full time as a business or just part time to generate side income, there are several tax implications that homeowners should be aware of.
Rental Income v. Business Income
First, many individuals are surprised to learn that revenue earned from AirBnB and accommodation sharing is taxable. For the most part, income generated through accommodation sharing will be classified as rental income. Homeowners generating rental income will need to report and file a T776 form – Statement of Real Estate Rentals. This form provides details on the income, expenses and capital cost allowance incurred from the property.
Alternatively, in some cases the revenue earned from accommodation sharing should be reported as business income. This is often the case if the homeowner operates multiple units or provides additional services. The CRA notes that in most cases, you are earning an income from your property (rental income) if you rent space and provide basic services only. Basic services include heat, lighting, parking and laundry facilities. However, if you provide additional services to tenants, such as cleaning, security and meals, you will most likely be considered carrying on a business. The more services you provide, the greater the chance that your rental operation is a business.
It is important to remember that anyone who operates a business is required to fill out a T2125 form – Statement of Business or Professional Activities. The T2125 form is a schedule that goes along with a tax return which details the taxpayer’s income, expenses and type of business it’s operating. The following is a more detailed analysis on the T2125 form and its requirements.
GST/HST Remittances and Accommodation Sharing
Another common question many AirBnb hosts have is whether they need to collect and remit sales tax (GST/HST). The first important factor the homeowner must consider is whether they are doing short term or long term rentals. If the homeowner rents out their unit on a long-term basis (more than 30 days), the income is exempt from GST/HST. The second factor is the income threshold. For short term rentals, the homeowner must register and collect GST/HST if their revenue exceeds over $30,000 in 4 consecutive quarters (12 months).
Deductions from Income
One advantage of operating an accommodation sharing rental unit is that you can deduct certain expenses used to operate the unit. The deductibility of an expense usually depends on whether the expense was incurred for the purpose of earning or producing income.
Expenses that are commonly deducted from accommodation sharing units include but are not limited to the following:
- Maintenance and repairs;
- Mortgage interest;
- Property taxes; and
Homeowners should be cognizant of the fact that personal expenses cannot be deducted. In other words, if any of the above-mentioned expenses were incurred for personal use, it cannot be deducted. Similarly, the homeowner should calculate the portion of the expense that was used for business if some of the expense was incurred personally.
Accommodation sharing is expanding and many homeowners are looking at it as a new opportunity to generate income. However, it is critical that they navigate through their tax obligations to ensure they don’t get penalties and interest if mistakes are made. If you are looking to become an accommodation host and have any questions, contact a lawyer a R&A Tax Law today! We are here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.