If you happen to lease out your property, be it your principal residence or a secondary house, on an lodging sharing platform corresponding to
or Expedia Group’s Vrbo, you might be required to report your earnings, after deducting eligible bills, in your tax return. The
(CRA) could think about this earnings to be both rental earnings from a property or self-employment enterprise earnings.
The kind of earnings you earn impacts not solely the way you report it in your tax return, however the varieties of bills you possibly can deduct, and even whether or not it’s possible you’ll be entitled to sure authorities advantages, as a taxpayer just lately found in a tax case determined final month. However earlier than delving into the main points of this Airbnb case, let’s evaluate the tax guidelines related to
.
For starters, to find out whether or not the earnings you earn out of your short-term rental is assessed as rental earnings or enterprise earnings it is advisable to think about each the quantity and varieties of companies you present to your renters. Usually the CRA will think about your earnings to be rental earnings from property should you lease house and supply solely fundamental companies corresponding to warmth or air-con, utilities, parking and laundry services.
Alternatively, your earnings could also be thought of to be self-employment enterprise earnings should you present different companies to renters, corresponding to meals, safety and cleansing. The extra companies you supply, the larger the possibility that earnings out of your rental operation is taken into account enterprise earnings.
In case your earnings is taken into account rental earnings, it is advisable to full
, Assertion of Actual Property Leases and report that earnings on strains 12599 and 12600 of your return. Alternatively, should you present different companies to renters, that earnings is taken into account to be self-employment earnings and must be reported on
, Assertion of Enterprise or Skilled Actions.
In both case take into account that as of 2024 the federal government launched new guidelines governing “non-compliant” short-term leases in an try to curb funding in sure residential actual property properties. Below this new rule, the CRA will deny earnings tax deductions for bills incurred to earn short-term rental earnings, together with mortgage curiosity expense, in provinces and municipalities which have prohibited short-term leases.
The CRA can be denying earnings tax deductions when short-term rental operators usually are not compliant with the relevant provincial or municipal licensing, allowing or registration necessities with regards to their
.
Assuming your short-term rental is compliant, you possibly can typically deduct any cheap bills you incur to earn rental earnings for the interval throughout which the short-term rental was compliant. However, should you lease out solely a part of your property, corresponding to a basement suite or spare bed room, you possibly can declare solely the bills that relate to the rented a part of your property. That is usually calculated by dividing the world of the accessible rental house by the entire space of your property. You then pro-rate that quantity additional by the share of days within the 12 months that the house was rented.
In case your short-term rental is taken into account to be rental earnings, as is extra typically the case, you then don’t must make Canada Pension Plan (CPP) contributions on that rental earnings. However, in case your earnings is self-employment earnings, you would wish to contribute each the employer and worker parts of CPP, which for 2025 is 11.9 per cent, as much as a most of $7,735.
Alternatively, in case your short-term rental earnings is assessed as enterprise earnings, then it’s thought of to be “earned earnings” for the aim of
. Below the Revenue Tax Act, eligible youngster care bills could be deducted by the lower-income father or mother as much as two-thirds of their earned earnings. If the short-term rental earnings is assessed as rental earnings, nonetheless, that earnings isn’t thought of to be earned earnings for the needs of the kid care expense deduction.
Lastly, the correct classification of short-term rental earnings additionally has implications for claiming authorities advantages, as a taxpayer discovered in a current case involving COVID-19 profit funds. The case, heard in Federal Court docket, concerned a taxpayer who challenged the CRA’s choice to disclaim him advantages and requested the court docket to evaluate the choice to find out whether or not it was cheap.
When the pandemic hit, the taxpayer utilized for and initially obtained a wide range of advantages, together with the Canada Emergency Response Profit (CERB), the Canada Restoration Profit (CRB) and the Canada Employee Lockdown Profit (CWLB). The CRA subsequently determined to validate the taxpayer’s entitlement to the advantages, and concluded that he was ineligible for the all of those advantages as he had not earned not less than $5,000 in employment or self-employment earnings within the prescribed durations, and since he had not stopped working or had his hours lowered, for causes associated to COVID-19.
The taxpayer argued that the CRA erred in classifying his Airbnb earnings as rental earnings, fairly than self-employment earnings eligible for the advantages, because the Company failed to think about proof of his operations and the companies offered to his friends.
Earlier than COVID, from 2016 via 2019, the taxpayer reported his Airbnb earnings as rental earnings, not as self-employment earnings. He reported no different earnings in 2020 or 2021 (except for COVID advantages), and he didn’t declare any bills that confirmed extra companies being supplied apart from the rental of the house. The taxpayer confirmed that almost all of the companies for his Airbnb itemizing was cleansing and making ready for the subsequent friends’ arrival, and there was no additional proof to substantiate that any extra companies had been offered.
The decide subsequently discovered that it was cheap for the CRA to conclude that the taxpayer’s Airbnb earnings didn’t qualify as self-employment earnings. In consequence, he was not entitled to the COVID advantages.
Jamie Golombek,
FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto.
Jamie.Golombek@cibc.com
.
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