Airbnb Tax Info Canada

Tax Implications of Short-Term Rentals for Property Owners

Short-term rentals like Airbnb are becoming increasingly popular. We get a huge number of inquiries about them at my real estate law office in Edmonton, Alberta, and I know that folks are concerned about them across Canada. The legal issues with short-term rentals often have to do with local zoning regulations for a property, which can vary by city and even by neighbourhood. The tax implications of Airbnb (or its competitors like Vrbo, HomeAway, TurnKey, FlipKey, etc.), however, are mostly provincial and national. This blog post will flag some of the key considerations and link to further reading from accountants who specialize in real estate investment.

What kind of income are you making and how will it be taxed? What if you have a combination of short-term and long-term, does this make a difference? What if you’ve purchased the property by way of Agreement for Sale and you plan to turn it out on a Rent-to-Own to someone who is doing short-term rentals? There are certainly a lot of questions. Make sure you start thinking through them—especially if you’re planning to attend our upcoming AFS (Agreement for Sale) Intensive workshop coming up September 14, 2019 in lovely Red Deer, Alberta.

Airbnb Tax Classification and Reporting

The first tax considerations with short-term rentals like Airbnb is how much money you’re making and how you’re making it. For people looking to rent a spare room occasionally for extra cash, it can be relatively simple. No matter what, you’ll need to declare the gross income and expenses on your tax return. If you’re making less than $30,000 Canadian per year with short-term rentals, you don’t need to charge sales tax (GST/HST). If you only provide a furnished space to guests, the income is declared as rental income on your tax return.

Things with tax are not always as simple as they seem. If you provide additional services to guests, like breakfast, laundry, guided tours, etc. then the income could be considered a business, and it is declared—and taxed—differently. Furthermore, if you do short-term rentals most of the time, your property may no longer be considered a residential complex for tax purposes. In some provinces or cities, there may also be additional accommodation taxes or levies on short-term rentals. As always, be sure to do your due diligence.

Tax Deductions and Property Status

When reporting expenses to reduce the tax burden, short-term rental hosts must distinguish between two types of deductions. First are current expenses, which are regularly re-occurring costs like mortgage, utilities, insurance, and repairs. The expenses can be prorated against the amount of time that a property was rented out, as well as the amount of the space that was rented (i.e., one room vs. a whole house).

Second are capital expenses, which are more durable, such as renovations and improvements to the building. There is a limited capital expense allowance in any given year, but the costs can be deducted over several years.

N.B. Claiming capital expenses can change the tax status of your property!

When you sell a property that is your primary residence or a long-term rental, it is typically exempt from the GST/HST. On the other hand, property that is mostly used for short-term rentals is subject to GST/HST when you sell. Also, if you claim capital expenses on your home or rental property to offset short-term rental income, it can prevent you from claiming the principle residence GST/HST exemption when selling. The Canada Revenue Agency won’t let you just change the status back to being a principle residence or long-term rental before selling; if you do that, you as the owner will be liable for GST/HST on the market value!

Dig Deeper on Tax for Short-Term Rentals

This blog post has introduced some of the important issues of tax for Airbnb and other short-term rentals in Canada. Tax law is complicated, and it’s important to do your due diligence if you want to become a host or if your Rent-to-Own tenant/buyer is planning on hosting. We are happy to link everyone to our friends at BDO Canada who have written a more in-depth article and a helpful FAQ on the subject.

Tax Considerations for Airbnb Hosts

Short-term Rentals: Top GST/HST Questions Answered

One last bit of advice. Keep records about all your income and expenses for short-term rentals, as well as details about number of guests, length of stay, services provided, etc. If the tax collector comes knocking, you’ll want to be prepared to answer all their questions! You may wish to consult an accountant early to avoid hassles down the road.

 

“Airbnb  Apartment Rental Logo Holiday Screen” image by TeroVesalainen used under a Pixabay License.

How to Avoid Non-Resident Tax when Buying Canadian Real Estate

calculator with buttons for tax

Am I Liable for Canadian Taxes When Buying Property from a Non-Resident of Canada?

I’ve written before on the extremely dangerous issue of non-resident taxes on Canadian real estate. Real estate agents and real estate lawyers in Canada know about non-resident tax. To give buyers comfort that the seller is a legal resident, the classic way to get some protection is to get sellers to sign statutory declarations that say, “I am not a non-resident…” Buyers then rely on the statutory declarations to make a decision that they do not have to collect withholding tax and that there are no CRA non-resident tax issues. But what if that isn’t enough to protect yourself? Continue reading

Inheriting Property Isn’t as Simple as it Seems

Will and Testament

Podcast Episode 117: Estates Are Tricky!

Real estate can cause all kinds of problems when a family member passes away. First, it can take a long time before the will is executed and the inheritor is actually in control of the property. Second, the person who inherits the property also inherits the financial responsibility (mortgage, taxes, etc.), which they end up responsible for even before they own the real estate! This Tale is about what happened when someone inherited a piece of property and almost went into foreclosure with it.

Download the audio file HERE.
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Avoid Jail-time and Make Money: Assigning Offers to Purchase Real Estate in Canada

Podcast Episode 115:

“Flipping / Assigning Properties? Don’t Go To Jail!”

Not too long ago, I wrote a blog post about the legalities of flipping properties using a Creative Investing Strategy called “assignment.” Now I’m making that topic available as a podcast because I want Canadian investors to have every opportunity to make money without getting on the wrong side of the law. In a hot real estate market, flipping properties by assigning your interest in the purchase can be lucrative. Just make sure to do it legally because the CRA is cracking down on so-called “shadow flipping” and undeclared income!

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Investing with Those Closest to Us Is Fraught with Peril

Image of stick people holding hands

Podcast Episode 114:

“Real Estate Between Friends and Family.”

It might seem easier to invest in real estate with people you know and love because you already trust them. Actually, you still need to do the same amount of due diligence, if not more! When you get into real estate deals with friends and family, there’s more at risk than just money.  This podcast is about protecting your relationships if you choose to invest in property with the people closest to you.

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Flipping Properties is Risky. Here’s Why!

Podcast Episode 113:

“So, You Want To Be A ‘Flipper.’”

There is a whole section of the real estate investment world known as ‘flipping.’ Basically, flipping is when an investor gets control of a property by signing a purchase contract, but rapidly sells it to someone else for a profit. Don R. Campbell of Real Estate Investment Network (REIN) fame has long cautioned against the most common form of flipping, which is to invest in condominium pre-sales. This is a Tale about a client of mine who got caught trying to flip a bunch of properties

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Flipping / Assigning Properties? Don’t Go To Jail!

CRA Investigating Tax on Undeclared Earnings for Flipping Offers to Purchase Real Estate in Canada

We’ve all heard the stories. In red-hot real estate markets like Toronto and Vancouver, brand-new projects, especially condo projects sell out fast. When sales open, there are lineups around the block. Desperate purchasers clutch serious deposit money in their anxious hands, hoping against hope that by the time they get to the front of the line, there will be a unit left for them to buy. Often, when sales to the public start, a 100 unit project has only 40 units left, the others are already sold. Who got to buy those units and how does that work? Continue reading

Is Your RRSP Mortgage Legal?

Podcast Episode 108:

“RRSP Mortgages and the CRA.”

Registered Retirement Savings Plan (RRSP) mortgages, the supposed Holy Grail of private lending. I hear it all the time. Borrowers of all stripes believe there is a vast pot of money held in RRSP accounts just waiting to be lent to them. And, to some extent, that’s true. There are lots of folks with lots of RRSP money tucked away. Maybe you’ve thought about leveraging your RRSP to become a lender yourself.

But, like everything else run by the government, there are rules to follow if you want to lend your RRSP money as a mortgage.

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Struck Corporations, Land Titles, and Tax in Alberta

3D stickman with red letter envelope

Podcast Episode 102:
“Corporate Matters Matter.”

Here at RMLO Law LLP in Edmonton, Alberta, we are the corporate registered office for many corporations. We get lots of letters addressed to those corporations because that’s part of being registered office. Anyone who wants to send something official to a corporation can send it to the registered office. Those official notices are often notices of trouble…

A recent letter was no different. It was a scary letter!

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Assuming Mortgages and Transfering Property to a Corporation

house outline with check mark

Podcast Episode 99:
“Happy Assumptions & Corporate Rollovers.

This episode of Tales from the Trenches contains two stories about transfers: one is about transferring mortgages and the other is about transferring property.

In theory, many mortgages are assumable, but in practice lenders in Alberta (and elsewhere) have been tightening up on their regulations. Some lenders just won’t allow it at all, while others require full re-qualification. This Tale explains how a real estate investor got the bank to agree to a mortgage assumption after he held a property for just seven days!

Rollovers are when a property is transferred from your personal name to your corporation or vice-versa. My Edmonton legal firm, RMLO Law LLP (formerly Ritchie Mill Law Office), helps people with rollovers all the time. But we always caution our clients to get additional accounting advice because capital gains might be an issue. In this Tale, the example is an investor who rolled over a property and had to pay the Canada Revenue Agency (CRA) $30,000 dollars in tax…

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For all your Alberta real estate law needs, contact Barry and he’ll sort you out.

“3D Home Inspection Big Check” by http://www.ccpixs.com/ used under CC Attribution 2.0 Generic.