Do you wish to determine whether your Canadian Airbnb income is taxable or not?
Have you registered yourself on a home-sharing site such as Airbnb and are now wondering how to report and pay Airbnb taxes? It is important to know the details surrounding home-sharing because for tax purposes you must separate the business and personal use of your home as well as determine the days it was used for rental purposes.
This article will help you understand when your host income is taxable, how you can make deductions for expenses and how you can report your related Canadian personal or corporate income taxes.
Determining if your Airbnb Income is Taxable in Canada:
It is important to note that your Airbnb income is taxable whether you are renting out only part of your home for a few days in a year or consistently throughout the year. Rental days are the days when someone is paying fair market value for the home or a room.
Short term rental income can be considered rental income or business income based on various factors. Depending on whether it’s rental or business income it will have a unique way to report the amounts on your Canadian corporate tax return or individual income tax return.
The Airbnb website keeps a track of your earnings so you can see your total rental income for the year. You just need to open the Transaction History in your account to access this information. You can report rental income on Form T776 Statement of Real Estate Rentals. If you do not know how to prepare that form, a tax accountant can help you. You can consult one here at SRJ Chartered Professional Accountants. If the amount is considered business income then you can report it on Form T2125.
Renting All VS. Part of You Home:
Your tax burden may vary depending on whether you are personally using all or part of the home during a year.
For example, if you do not live in the house, you can write off all the expenses for the days when you rent it out at fair market value.
If you only rent out a part of the house or you use only part of the house for personal use, only expenses incurred on the part used for rentals and for the days it was rented out can be written off.
What percentage of the rent and utilities can be written off as an expense can be determined with the help of a professional accountant.
Deducting Rental Expenses:
If you wish to deduct expenses as an Airbnb host you can divide them into direct and indirect expenses.
All expenses directly related to Airbnb hosting such as fees paid to Airbnb, advertising, local licenses etc can be deducted. You can also deduct home expenses for the part of your home used for hosting. Indirect expenses include utilities, internet and depreciation etc. You will be required to keep a detailed record of any expenses incurred as they might come in handy if CRA wishes to audit.
To determine which rental expenses are direct or indirect or which ones are deductible can be an arduous task. At SRJ Chartered Professional Accountants we have real estate tax experts who can help you sort that out.
Charging HST/ GST as an Airbnb Host:
You will be required to collect and remit provincial sales taxes to the CRA if you earn more than $30k over four consecutive calendar quarters through your short term rentals. Short term rentals refer to guests who stay in your home for less than a month at a time. If you rent your property for a longer time period the income earned is not subject to Canadian sales tax.
For those who are self-employed or business owners and are already GST/HST registrants, it is important to note that they must charge sales tax on the rentals irrespective of their income. Unfortunately, the website doesn’t allow Canadian hosts to add sales tax to their listings yet. It is therefore recommended that any such sales tax must be included in the price and a note may be added to explain that the price includes the local sales tax.
Reporting Airbnb Tax on Return:
Your income as a host must be reported and paid taxes on. The form you use depends on whether you offer services for your guests or not.
If you do not perform substantial services you will be considered as a real estate rental business for tax purposes. However if you provide services like cleaning, housekeeping and breakfast for your guests, it will be considered as running a service business, which means:
- All of your income will be taxable
- You will be required to pay self-employment tax on that income
It is best to hire a professional accountant to help you file your Airbnb tax return. SRJ Chartered Professional Accountants can assist you with this.
How Much Tax is payable on Airbnb Income:
Personal rental income that you earn is taxed in accordance with your marginal tax rate, but it does not include your provincial income tax. In most cases the taxes may go up to 53% of the earnings that is why it is always advisable to consult a chartered professional accountant like the experts at SRJ Chartered Accountants who can help you reduce your tax liability.