When you lease out your property, be it your principal residence or a secondary house, on an lodging sharing platform reminiscent of
or Expedia Group’s Vrbo, you’re required to report your revenue, after deducting eligible bills, in your tax return. The
(CRA) could contemplate this revenue to be both rental revenue from a property or self-employment enterprise revenue.
The kind of revenue you earn impacts not solely the way you report it in your tax return, however the forms of bills you possibly can deduct, and even whether or not you could be entitled to sure authorities advantages, as a taxpayer lately found in a tax case determined final month. However earlier than delving into the small print of this Airbnb case, let’s assessment the tax guidelines related to
.
For starters, to find out whether or not the revenue you earn out of your short-term rental is assessed as rental revenue or enterprise revenue it’s essential contemplate each the quantity and forms of providers you present in your renters. Usually the CRA will contemplate your revenue to be rental revenue from property when you lease house and supply solely primary providers reminiscent of warmth or air con, utilities, parking and laundry amenities.
Alternatively, your revenue could also be thought-about to be self-employment enterprise revenue when you present different providers to renters, reminiscent of meals, safety and cleansing. The extra providers you provide, the better the possibility that revenue out of your rental operation is taken into account enterprise revenue.
In case your revenue is taken into account rental revenue, it’s essential full
, Assertion of Actual Property Leases and report that revenue on strains 12599 and 12600 of your return. Alternatively, when you present different providers to renters, that revenue is taken into account to be self-employment revenue and needs to be reported on
, Assertion of Enterprise or Skilled Actions.
In both case remember that as of 2024 the federal government launched new guidelines governing “non-compliant” short-term leases in an try and curb funding in sure residential actual property properties. Beneath this new rule, the CRA will deny revenue tax deductions for bills incurred to earn short-term rental revenue, together with mortgage curiosity expense, in provinces and municipalities which have prohibited short-term leases.
The CRA can be denying revenue tax deductions when short-term rental operators usually are not compliant with the relevant provincial or municipal licensing, allowing or registration necessities in relation to their
.
Assuming your short-term rental is compliant, you possibly can usually deduct any affordable bills you incur to earn rental revenue for the interval throughout which the short-term rental was compliant. However, when you lease out solely a part of your property, reminiscent of 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 out there rental house by the overall space of your property. You then pro-rate that quantity additional by the proportion of days within the yr that the house was rented.
In case your short-term rental is taken into account to be rental revenue, as is extra typically the case, then you definitely don’t must make Canada Pension Plan (CPP) contributions on that rental revenue. However, in case your revenue is self-employment revenue, 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 revenue is assessed as enterprise revenue, then it’s thought-about to be “earned revenue” for the aim of
. Beneath the Earnings Tax Act, eligible baby care bills will be deducted by the lower-income father or mother as much as two-thirds of their earned revenue. If the short-term rental revenue is assessed as rental revenue, nevertheless, that revenue isn’t thought-about to be earned revenue for the needs of the kid care expense deduction.
Lastly, the right classification of short-term rental revenue 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 determination to disclaim him advantages and requested the courtroom to assessment the choice to find out whether or not it was affordable.
When the pandemic hit, the taxpayer utilized for and initially acquired 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 no less than $5,000 in employment or self-employment revenue within the prescribed intervals, 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 revenue as rental revenue, moderately than self-employment revenue eligible for the advantages, because the Company failed to contemplate proof of his operations and the providers supplied to his company.
Earlier than COVID, from 2016 by 2019, the taxpayer reported his Airbnb revenue as rental revenue, not as self-employment revenue. He reported no different revenue in 2020 or 2021 (except for COVID advantages), and he didn’t declare any bills that confirmed extra providers being supplied apart from the rental of the house. The taxpayer confirmed that almost all of the providers for his Airbnb itemizing was cleansing and getting ready for the subsequent company’ arrival, and there was no additional proof to substantiate that any extra providers had been supplied.
The choose due to this fact discovered that it was affordable for the CRA to conclude that the taxpayer’s Airbnb revenue didn’t qualify as self-employment revenue. Consequently, 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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