This piece was originally published on July 11, 2019, and was updated on February 3, 2023.
With the summer season kicking off, many homeowners may be looking at Airbnb as a way to generate extra income. If you’re travelling for vacation, why not pay for it by renting out your house? If you go to the cottage every weekend, put some of those travel expenses back into your pocket. However, extra money in your pocket doesn’t come without its implications.
If you’re thinking of an Airbnb, there are some financial considerations of which you should be made aware. Everything from maintenance, home insurance, and of course, taxes. Taxes at this time of year is an odd topic, but, if you’re prepared, Airbnb income tax in Canada doesn’t need to be difficult
How do I claim Airbnb on my taxes?
“It’s really important for Canadians to know that they can still prepare their own tax returns easily,” says Caroline Corbeil, Tax Expert for SimpleTax. “If it’s a new income source for them, they don’t need to go to an accountant and spend hundreds of dollars to claim Airbnb.”
SimpleTax is a Canadian tax software company looking to make the complicated tax process, simple.
Do I have to claim Airbnb on my income tax in Canada?
Any income above your primary salary needs to be reported to the CRA. Whether your side hustle is Airbnb, driving for Uber, or even teaching yoga. If you rent out your house using Airbnb or VRBO, or even if you have a basement apartment, it’s all rental income, and you’ll need to report it. Airbnb will provide you with a statement of income you made at the end of the year.
When doing your taxes, you’ll need to claim it as rental income which, with SimpleTax, is as easy as typing in “rental income” in the search bar and filling out the required fields. You’ll have to pay income tax, but “you can also deduct a lot of the expenses that are incurred because you rent it out,” says Corbeil.
What kind of expenses can I use to offset the Airbnb income?
When you receive money from Airbnb, know that you haven’t yet paid your Airbnb income tax. Your employer handles tax deductions from your paycheque. Airbnb doesn’t do that math for you. If you make $5,000 renting out your home, that’s an extra $5,000 of income you need to report. If you earn between $47,630 and $95,259, then you would have to pay 20.5% on that $5,000 or $1,025.
Deductions can help bring down that amount. Corbeil says “things like property taxes, mortgage interest, any administration fees that you pay to rent out the property, utilities [heat, hydro], and all those kinds of things can be totally deducted from the income, so your income that you’re actually reporting is a lot lower than what you’re earning.”
But, beware, you can’t write off all your expenses.
According to Corbeil, “You can deduct that portion that’s used for the actual rental if the property is available to be rented out all year round.”
Let’s say you rent out your bungalow’s basement, that’s 50% of your total square footage. In this case, you could deduct 50% of those expenses for the rental, even if you’re not making money with it all year round. “As long as it’s available to be rented, the way the CRA looks at it is your intention, so if you’re intending to rent it out and it’s available to be rented out, then you can claim the expenses against it.”
With SimpleTax, the expense fields are there for you with descriptions on what is eligible.
If your annual bills are $6000, and renting out 50% of your house, then you can claim 50% of the expenses. If you make $5,000 from the Airbnb income, minus the $3,000 then you’re only paying taxes on $2,000 making your total taxes due only $410.
Airbnb income tax in Canada – eligible expenses
- Property taxes
- Home Insurance
- Utilities like gas, electricity, water
- Municipal annual licensing fees where applicable (e.g. Toronto and Vancouver)
- Mortgage interest (not your mortgage payments)
- Maintenance costs (to the rented space)
- Cleaning services (for the rented space)
- Any extra kitchen items from cutler to plates and cups
- A new lock and key
- Host gifts like a bottle of wine, snacks, or books for guests to take.
- Advertising/Marketing expenses
Other considerations on your Airbnb income tax in Canada
You need to register to pay HST/GST if you make more than $30,000, either from Airbnb or a side hustle. Airbnb does not collect, nor do they charge GST or HST to the renter, so it’s up to you to add the amount to your rental and remit to the government. Airbnb does not communicate what you’ve earned to the CRA because it’d be a breach of privacy, but it doesn’t mean you should become a tax dodger.
If you think you will break the $30,000 threshold, best to get ahead of it and register voluntarily for your GST or HST number. Don’t let this deter you from your rental though – track it, charge it, collect, report, and remit it. You’re like a camel for the government, collect the taxes in a pouch, travel across the desert throughout the year, and empty the pouch at tax time. The smart way to do it is to invest what you collect in a high interest savings account so you don’t touch it, and when the tax comes due, you’ll have enough to cover it and you get to keep the interest made.
Does using Airbnb affect the sale of my house?
By turning your house into an income property, you’re effectively changing the use of your home from personal use to business use, and therefore principal residence elections no longer apply (personal residence election refers to your stated personal residence on your tax forms, of which each individual or couple is permitted only one). You have to pay income tax on capital gains earned from the sale of properties for which principal residence elections do not apply. Fifty per cent of a capital gain from such a property must be included in your reported income.
If you had an investment of $10,000 and 5 years later you sold it for $15,000 (making a profit of $5,000), you need to include 50% of the profit (or $2,500) in your reported income.
“If you originally purchased the house for $200,000, and you decide to sell it 10 years later for $250,000, and that entire time you were renting it out the basement, there’d be a $50,000 gain on the entire property. But really, you should only get $25,000 gain because you’re only renting out half of it. And again, capital gains are taxed at 50% so on that $25,000, the actual taxable capital gain that you’re taxed on is $12,500,” Corbeil said.
You’d then take the $12,500, add it to your personal income for the year when you file your taxes and pay the resulting income tax on that depending on the bracket you’re in.
Tax is easy, but, if this sounds confusing at all, feel free to email them. “We respond to them super quickly and help them through anything that they have trouble entering,” Corbeil added.
If you want to do it the old school way, or even just to review it in more detail, here is the t776 statement of real estate rentals form.
A quick note on home insurance and Airbnb
While tax implications and hiring a maintenance person may be simple, insurance can be different. If you’re considering renting out your space, you should speak with your insurance provider. While Airbnb provides insurance, it’s only secondary to your own, and not all insurers are ok with you renting out your house. If something were to happen, they may not cover your claim. If they don’t cover Airbnb, make sure to get home insurance quotes from providers that do such as Intact, Duuo, and Aviva.
The bottom line
Renting out your space is a great way to make relatively passive income. Knowing the financial ins and outs, such as how Airbnb income tax in Canada works, will put you in good standing. Hey, if it helps pay off your mortgage faster, even better.