Trying to earn a little extra on the side is pretty common these days – everyone could use a little extra spending money. But just because it isn’t your full time job doesn’t mean you don’t have to consider the tax implications. Today we’ll cover an increasingly popular method of earning additional money: Airbnb
Renting out your home part-time (or part of your home) is one way to earn some extra money if you’re willing to open your door to strangers. If you are, you’ll 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 claim reasonable expenses you incur in order 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’ll be able to deduct will depend on how much of your home was used and how often you rented it. You’ll need to calculate the square footage of the space you rented, and divide that by the total square footage of your home. You’ll also need to divide the number of days you rented by the number of days the property was available to rent. 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 with Airbnb or other similar vendor.
Here’s 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 were able to 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 made specifically to the rented portion of your home. You’re also allowed to claim any fees for listing on Airbnb or any advertising costs you incur.
There are some things you won’t be able to use an expense – major 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’ll need to keep receipts and records of both the money you receive and the money you spend in case you need to provide them to the CRA. Keeping a ledger or spreadsheet to track you 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.
That’s 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.