Canadians who rent out their homes are starting to come to grips with the reality that they can run, but not hide from the taxman.
A Surrey, B.C. host has told Yahoo Finance Canada that she makes $100,000 a year before expenses from a property that isn’t her primary residence. Yahoo Finance Canada has allowed her to remain anonymous.
“We’ve always rented long term and it was a hassle dealing with tenants,” she said.
“Airbnb makes (us) significantly more money.”
When she files taxes, she claims roughly half of the full amount she earns on AirBnB. It’s how much she would earn from a long-term tenant.
“We don’t claim all of it because the house is not a separate business, so it gets claimed with our personal taxes,” she said.
“This will take us into a higher tax bracket and we will have to pay a lot more at the end of the year.”
She says she’s considering creating a holding company, under which the income would be claimed. But for now, she’s feeling nervous.
“I’ve started thinking about the CRA, and I’m a bit worried now,” she said.
Not worth the stress
Toronto’s Vikas Kumar owns two condos in the city that he lists on Airbnb, neither of which is his primary residence. His condos’ rules require stays to be 28 days or longer.
He also chose Airbnb instead of traditional long-term leases because of a better return, that people book his spaces for various reasons.
“I have been approached by students, doctors, corporate companies, and actors, for 1 to 4 month stays for school, short term work, residencies or employment training in Toronto,” Kumar told Yahoo Finance Canada.
“Sometimes people are just looking for a one month place to stay while they are in between apartments or looking to move to Toronto.”
Kumar claims all of the income he earns from Airbnb through a holding company.
“I follow the rules so I don’t have to stress or worry about the Canada Revenue Agency (CRA),” he said.
“My accountant is very good and helps me understand everything that I have to do in order to be compliant.”
All hosts have to claim rental income
Even if you’re renting out a part of the home you live in through Airbnb, you still have to claim it.
John Oakey, national director of tax services at accounting firm Baker Tilly Canada, says nobody has ever claimed Airbnb rental income through their principle residence in his 22 years of practice. But clients do claim it when the property is purely for profit.
“My thought is that individuals feel it is ok to earn a little bit of extra income without the need to pay tax on it, but once a property is exclusively used for earning income then there is a mind-shift to needing to declare and pay taxes,” he told Yahoo Finance Canada.
Oakey says he expects CRA to get tougher.
CRA looking into the sharing economy
The CRA says it’s losing billions of dollars every year through unreported income from the sharing economy, which includes Airbnb. But the agency is taking a broader approach to the problem.
“The Canada Revenue Agency has identified the sharing economy as an area of risk for non-compliance,” a spokesperson told Yahoo Finance Canada, who added that the agency is “identifying the highest risk files for compliance action” to ensure that hosts are paying their fair share.
The agency says it can’t pinpoint revenue from Airbnb versus long-term rentals because tax filers aren’t asked to report the type of rental they offer, but short-term rental sites like Airbnb are very much on its radar.
“The CRA will continue to monitor this sector, focusing our efforts on hosts that are providing short-term accommodations as a business.”
It has a lot of firepower to go after tax evaders. The most recent federal budget gave the CRA an additional $66 million to target non-compliance in the digital economy.
Gary Chow, principal at Baker Tilly’s Vancouver office, thinks that’s easier said than done when it comes to Airbnb.
“The amount of tax slippage is sprinkled amongst a rather large population, making audit activities a rather labour intensive exercise,” he told Yahoo Finance Canada.
“The CRA is limited in what it can do as Airbnb is ultimately a market facilitator and the responsibility for paying taxes rests with the property owner.”
The agency says it’s also educating taxpayers about their GST/HST obligations. Only hosts who bring in more than $30,000 are required to collect.
Airbnb is cooperating
Airbnb says the CRA has not told the company that it and its hosts are a target, or asked for its help in catching tax evaders. In fact, Airbnb says it approached the agency first, to ensure everything was in order.
The company also says it actively tries to ensure hosts are tax compliant.
“Airbnb works with hosts across Canada during tax season by sending out an annual income tax reminder that contains links to their annual earnings and to CRA and Revenu Québec webpages on how to claim short-term rental income on their taxes,” an Airbnb representative told Yahoo Finance Canada.
“We work in collaboration with the CRA to ensure our hosts are aware of their income tax obligations and further encourage compliance through a partnership with H&R Block that provides educational tools and discounts to hosts for their tax filings.”
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.