Airbnb is an innovative travel company that offers accommodations around the world in private homes. The advantages are lower costs and unique surroundings, whether you want a room, apartment, house or even a castle. It has become a staple for many travellers – even Beyoncé, who is rumoured to have rented a $10,000-a-night mansion through Airbnb prior to the 2016 Super Bowl.[i]
More and more travellers and homeowners are using Airbnb and other room-sharing services and methods, such as short-term rentals on Kijiji. In Toronto, for example, Airbnb rentals have increased 288% during the past two years.[ii] On the flip side, homeowners are also leveraging this new marketplace to make some extra cash, and some are going a step further and purchasing numerous units for the purpose of listing them on Airbnb.
While Airbnb and the rest of the new economy is exciting, there are some lesser known federal and provincial sales tax implications that were highlighted at a recent Canadian Tax Conference. Not surprising, just like tips earned at a restaurant, income earned via Airbnb rentals must be reported as income on your personal income tax return. What’s more, unlike long-term residential rentals, Airbnb and other short-term rentals that generate gross revenues of more than $30,000 are subject to sales tax. So if your annual room-sharing revenue exceeds that amount, you must register collect and remit HST/GST/QST.
When the time comes to sell a property that you rented out on Airbnb, it may not qualify for the principal residence exemption from capital gains tax. Thus, your profit on the sale would be subject to tax on the gain and recaptured tax depreciation. As well, you could be inadvertently hit with HST/GST/QST on the proceeds of sale (or on a change in use of the property) if more than 90% of the leases on Airbnb were for periods of less than 60 days apiece. Generally speaking, sales taxes may apply on any sale where the property is not otherwise excluded as a “residential complex”, as defined by the federal Excise Tax Act.
Among noteworthy scenarios presented at the conference, one involved continually renting out space in your home for short-term rentals (under two months each) during an entire year while you resided elsewhere. In such a case, your property would likely no longer qualify as a residential complex and an eventual sale would be subject to sales tax. With condo values nearing close to $1,000,000 in some parts of Canada, HST on such a sale in Ontario for example, could be as much as $130,000.
Although you could try to cover this added expense by increasing your sale price, you might be put at a competitive disadvantage to those selling homes that do not face this tax burden. Furthermore, should you decide that you are going to move back into a home that has been used exclusively for short-term rentals, it would likely be viewed by the tax authorities as a change in use transaction, and you be required to self-assess and remit HST/GST/QST.
While on the surface Airbnb seems a great way to help cover your living expenses, before deciding to move forward it is wise to touch base with a tax advisor to understand all the implications and nuances you might not have considered.
[i] Waldek, Stephanie. “Tour Beyonce’s $10,000 a Night Superbowl Airbnb Rental.” Architectural Digest. February 9, 2016. http://www.architecturaldigest.com/story/beyonce-super-bowl-airbnb
[ii] Hennessey & Jamasi. “Nobody’s Business: Airbnb in Toronto” Canadian Centre for Policy Alternatives. 22 September 2016.