Tax Considerations for Airbnb and Short-term Rentals 

Many Canadians are increasingly using platforms like Airbnb to rent out their primary residences or secondary properties. However, before diving into this venture, it’s essential to understand the tax implications set by the Income Tax Act (ITA) and the Canada Revenue Agency (CRA). 

1. Reporting Rental Income: All income generated from renting must be reported on your tax return, including the gross rental income and associated expenses.
2. Business Income vs. Rental Income: The CRA differentiates between rental income (from property) and business income (from property). The classification depends on the services you offer to your renters. Basic services like heating, parking, and laundry are considered rental income. In contrast, additional services like meals, cleaning, and security might classify the income as business income. Notably, rental income isn’t subject to the Canada Pension Plan (CPP).
3. Corporate Ownership of Short-term Rentals: If a corporation owns the rental property, the rental income might be classified as “active business income” based on the services provided. This income could be taxed at 12.2% in Ontario for a Canadian Controlled Private Corporation. However, if deemed basic rental income, it might be taxed at 50%, with 30% being refundable if dividends are declared to shareholders.
4. Deductible Expenses: You can claim various expenses related to your rental income. Some common expenses include:

• New bedding, toiletries, and kitchenware 
• Additional keys and lockboxes 
• Utilities, property taxes, and mortgage interest 
• Cleaning services, management fees, and advertising costs 
• Professional fees (e.g., legal and accounting) 

5. GST/HST Considerations: Short-term rentals might be subject to GST/HST if rented for less than 30 consecutive days at more than $20/day. However, long-term rentals are exempt. As of July 1, 2021, new rules ensure that all short-term accommodations supplied through digital platforms are subject to GST/HST.
6. Buying Property for Short-term Rental: If you’re purchasing a property specifically for short-term rentals, consider registering for GST/HST before reaching $30,000 in income. This allows you to recover the full GST/HST paid on the property purchase.
7. Long-term Tax Impact: Renting a personal property can have various tax implications. For instance, when you start renting a personal-use property, it’s seen as a change in use, and you might be deemed to have disposed of your property at its fair market value. This can result in a capital gain. However, there are elections and designations you can make to defer or reduce these implications.
8. Ending the Rental or Selling the Property: If you decide to stop renting or sell the property, you might need to self-assess the GST/HST based on the property’s fair market value. This situation is known as a “self-supply.”