We often here our clients say ‘What are my tax obligations for being an Airbnb host, and what must I am required to declare to be tax compliant’
Many of us have enjoyed the supplemental income of being an Airbnb hosts over the past few years, unfortunately it does bring the added responsibility of reporting rental income when filing a tax return, and in some cases is may even be considered as ‘business income’. There are steps you can take to ensure that you are being ‘tax compliant’.
Rental income or business income?
The majority of Airbnb hosts receive payment for short-term rental services provided to their guests. This income is to be recorded as rental income when filing a Canadian tax return at year end. However, there are some people who provide other services such as meals, laundry (other than towels and linen), in which case this income can be viewed as business income (self-employed income). Neither rental income, or business income has tax deducted at source, and therefore needs to be paid to CRA at year end when filing a tax return. If you are unsure of the type of income you need to declare on your tax return, please feel free to contact the Jackstaxback team.
How does rental income affect my tax return?
If your Airbnb income is treated as rental income on your tax return, you will be required to fill out a T776 as part of your federal T1 tax return. If the income is to be treated as business /self-employed income you will be required to complete a T2125 as part of your T1 tax return. Both forms can be complicated to figure out at first glance if filing your taxes yourself, and we do advise people to seek advice from a tax return specialist or accountant. Failure to report the income correctly could result in future warnings or penalties from CRA.
GST responsibilities
Currently, charging GST is the responsibility of the host. If you expect to earn over $30k in self-employed/business income from Airbnb you are required to apply for a GST number, and incorporate GST as part of your fee to guests. As with all services and goods provided within BC, you are legally required to charge GST on those goods or services should your revenue surpass $30k within any 12-month period. You will also be required to file a GST return alongside your tax return at year end, a service which is offered by Jackstaxback.
Why you should be tax compliant
Failing to be tax compliant can result in hefty fines/penalties from CRA if your tax return is not correctly filed. Any omissions of information, or misfiling of information with your tax returns are frowned upon by CRA, and their audits can mount if you are unable to provide them with the information they require.
It is always advised that tax returns should reflect the financial transactions that occurred in the year, in order to stay on the ‘good’ side of CRA. It is also advised that organized logs of receipts and expenses are kept in order, to ensure that potential audits are easily resolved.
Questions
If you have any further questions regarding your rental income or all other tax matters, please send us an email. The experienced Jackstaxback team are more than happy to answer any questions you may have, after all, tax doesn’t have to be taxing.