Do I need to pay tax on Airbnb income?
Posted on August 9, 2015 by Daniel Toma
The answer is- yes. If the Canada Revenue Agency discovers unreported income, you will likely face interest and penalties in addition to a tax assessment. For our neighbours in the United States, rental income is tax free up to a maximum of 14 days per year however there is no such threshold in Canada.
I hate to be the one to break the bad news but CRA is on to the fact that many Canadians are not declaring income from Airbnb and other online sources. They have even added a line to one of the personal tax forms for the URL of any websites a taxpayer earns income from and the % of income earned online1. It is important to note- money is flowing through your bank account which is often one of the first places an auditor will check. If you have not been declaring Airbnb income- please talk to me about a Voluntary Disclosure to CRA which will eliminate the associated penalties and just result in a tax bill with interest.
So what else do you need to know about Airbnb as it relates to your tax situation? With regards to income, you likely have a good record of amounts charged to guests via your Airbnb account. However keep track of those expenses! If you are renting out a room in your home or condo, you can claim a portion of expenses such as utilities, property taxes, interest, condo fees, etc. The proportion of costs that can be claimed depends on factors such as the percentage of total square feet and days occupied. Furthermore, you can claim 100% of expenses you specifically incurred for hosting, such as soaps and shampoos provided to guests. However please note- just having a credit card bill for expenses is often not enough in the eyes of CRA, keep the actual receipts too2.
While each scenario is different, I hope that the above information provides some useful insights. There are other matters to consider such as whether the income is treated as business rather than rental income, which should be evaluated on a case-by-case basis (see the following link). Please contact me to discuss your own tax situation- I am always glad to start a conversation!
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1 The change was made to the T2125 form (for business income/expenses). In most cases Airbnb income will be considered rental income and recorded on the T776 form (for rental income/expenses). However if you are providing additional services such as provision of meals the income may be considered business income- please see the following CRA link and contact me to discuss your tax situation further.
2 The reason credit card bills are often not adequate as sole documentation is because they do not always specifically identify what was purchased. CRA may argue that such expenditures are not proven to be business related.
The above information has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act upon the information contained therein without obtaining specific professional advice.