Trying to earn a little extra on the side is common these days – everyone could use a little extra spending money. But just because it is not your full-time job doesn’t mean you don’t have to consider the tax implications. Today we will cover one method of earning additional money – renting out your home through organizations such as AirBnB.
Renting out part of your home (or your entire home part-time) is one way to earn some extra money if you are willing to open your door to strangers. If you are, you will need to consider that this would be rental income in the eyes of the Canada Revenue Agency (CRA) and that you should report that income on your personal tax return come April.
There is some good news! You are allowed to deduct reasonable expenses you incur to earn this income. Some examples include:
- Supplies you purchase specifically for the purposes of renting (e.g., new sheets, soap & shampoo, extra set of dishes)
- Repairs & maintenance (painting, new lightbulbs, electrical & plumbing repairs, hiring someone to shovel your walkway)
- A portion of your home expenses like utilities, property tax, interest on your mortgage, and insurance.
The portion of your home expenses you will be able to deduct will depend on how much of your home was used and how often you rented it. You will need to calculate the square footage of the space you rented and divide that by the total square footage of your home. You will also need to divide the number of days you rented by the number of days the property was available to rent (this is relevant if you only rent some days – for instance, if you use AirBnB). Multiply those percentages together, and that is the portion of your home expenses you’ll be able to use against the income earned from renting your home.
Here is a quick example…
You are renting out the basement of your 2,000 sqft home starting January 1st. The basement is 1,000 sqft, and the rest of the home is also 1,000 sqft. The rental portion of your home would be 50% (1,000/2,000sqft).
The basement was available to rent for the entire year, and you could rent it out for 112 days. The amount of time it was rented was 30.7% (112/365 days).
Multiplying these percentages together, you would be able to claim 15.35% of your expenses that cover your entire home (utilities, property tax, etc.). You would be able to claim 100% of the supplies and repairs explicitly made to the rented portion of your home. You are also allowed to claim any fees for listing on AirBnB or any advertising costs you incur.
There are some things you will not be able to use an expense; significant renovations to your home (additions, complete room renovations, significant upgrades), major appliances, or buying an entirely separate property. These items are considered ‘capital’ and an investment in your home but can’t be deducted against income.
You will need to keep receipts and records of both the money you receive and the money you spend to provide them to CRA. Keeping a ledger or spreadsheet to track your income and expenses will help you stay organized throughout the year and will help with completing your tax return at the end of the year.
One other thing to consider – currently, CRA generally allows you to sell your home tax-free under the principal residence exemption. This exemption does not apply if your home is mainly used to earn income. So be careful! Renting out the majority of your house could affect your ability to sell the property tax-free in the future, even through AirBnB.
Those are the basics of renting out some, or all, of your home. If you have any questions or comments, please contact us at 1-866-822-9992.