Alberta is home to the picturesque resort town of Banff nestled in the Rocky Mountains, and thriving metropolises like Calgary, Edmonton, Red Deer, and Lethbridge.
Each year, Alberta attracts droves of people to tour its province for its beauty and culture and because it’s a haven for tourists and residents alike. In this article, we’ll dive into how property owners can report taxes, whether you use an online marketplace or act as a property manager for your short-term rental (STR) property.
What’s considered a short-term rental?
In Alberta, a short-term rental is defined as any dwelling where renters occupy the space for less than a 30-day rental period. Nuances may vary across municipalities. Many property owners list their STRs as a as a weekend escape on Airbnb or VRBO, while some choose to advertise independently. Rooms in personal residences, condominium units, or residential homes can all fall under rental vacation homes.
When should I report the rental income for my short-term rental?
It’s essential to mark your calendar for all the key dates to file taxes in Canada to expedite your tax return. Here are the following deadlines to file your income taxes:
February 29, 2024
Retirement Savings Plan (RRSP)
Pool Registered Pensions (PRPP)
April 30, 2024
Deadline to file your taxes for the 2023 tax year.
June 15, 2024
Deadline for married or common-law partners who are self-employed.
Do I always need to report my rental income?
Earnings from your rental property are considered taxable income, so yes, you should report your rental income to the Canada Revenue Agency. Learn how to maximize your deductions for both passive or active incomes.
How do I report rental income for my short-term rentals?
Anyone earning money by renting out real estate or other property must file a statement that shows your rental income and what you spent on eligible expenses related to renting out that property.
This statement needs to cover your income and rental expenses from January 1 to December 31.
The Canadian federal government recommends that rental property owners use a form called the T776, which will help them figure out rental income and expenses related to their rental. Read this complete guide for Alberta’s income tax package and follow these steps to file your taxes effortlessly.
Step 1: Gather the proper forms
Keep detailed records supporting your purchases and operating expenses, including receipts, invoices, financial statements, basic services, and other relevant documentation that has enhanced your property.
Step 2: Determine if you are earning a rental or business income
Differentiating between active and passive income earned from rental property is essential to claiming deductions and accurately reflecting your annual income.
When homeowners have a property they rent as a vacation rental and only provide the basics, like a place to live with heating, electricity, parking, and maybe laundry facilities, they are likely only earning a passive rental income. But, if they go above and beyond and offer extras like cleaning, security, or even meals, it can qualify as running a business instead of just renting out your property, which would count as an active income for business owners.
Step 3: Reporting earnings from short-term rentals
Using a T776 Form, complete sections for gross rent, rental expenses, and CCA. This step will help you determine your rental income and loss. The three losses are rental, business, and capital loss.
Capital loss is applied against gains and is categorized as a financial loss when the value of an investment decreases less than its original value.
The CRA sets a rate annually for how much capital loss or gains you can report.
Key tax deductions for short-term rentals
When filing your individual or personal tax return for residential properties, it’s essential to understand the distinction between current expenses and capital expenditures. Current expenses cover maintenance costs like repairs to keep your property in good condition, while capital expenditures involve improving residential properties to boost their worth.
Basically, capital expenses will increase your home’s value, and current expenses will fund the work needed to preserve its condition.
One way to increase your home’s value is to revamp its exterior. Curb appeal is a significant factor in increasing your home’s value and enticing renters and buyers. While individual homeowners may not capitalize on landscaping costs, if you manage a vacation property, install an irrigation system, and hire a landscape designer, those costs are considered capital expenses.
You can deduct eligible capital expenses over several years rather than all at once through a capital cost allowance. This includes expenses related to the purchase price and renovations.
To calculate the purchase price into the CCA, you must define what portion of the purchase price qualifies as a depreciable asset—an asset that decreases in value due to wear and tear over time—for tax purposes.
Additionally, property taxes paid on rental properties or principal residences available for rent are deductible. Maximizing rental property tax deductions, such as property taxes, soft costs, and other eligible expenses mentioned in financial statements, can significantly lower your tax liability.
You can optimize your deductions and ensure compliance with business deduction rules by accurately reporting rental revenue and associated expenses, including any extra income from vacation properties.
FAQ: Rental property tax deductions in Alberta, Canada
Some of the costs you may be able to deduct are advertising, office expenses, legal and accounting fees, insurance premiums, property management, property taxes, travel expenses, utilities, and other expenses related to managing and maintaining your rental unit, home, or primary residence where you rent a room.
In some provinces, you can. However, the finance minister will prohibit specific tax deductions and limit the use of Airbnb in some regions beginning in May 2024. For example, British Columbia’s STRs will be regulated. Check with provincial government updates.
Every region may have varying rules. Most of the time, you can deduct soft costs and other deductible expenses while actively overseeing the rental. It’s ideal to consult a tax professional regarding maximizing your deductions on your short-term rental property while complying with the law.
Various strategies can help to reduce your tax liability. Maximizing contributions to a Registered Retirement Savings Plan can lower taxable income. Ensure you claim all eligible expenses, like travel expenses, and take advantage of a tax-free savings account. You may be able to deduct the Alberta 4% Sales Tax or tourism levy collected by the property owner; however, some restrictions may apply.
Our final thoughts
If you’re determining whether you want to manage a long-term rental or short-term accommodation, review our guide. Discover the minimized risks with temporary accommodation and the potentially significant income tax deductions with long-term rental operating expenses.
Earning a short-term rental income on your residential units or personal residences can be an ideal source of passive income. Consult with a tax professional to maximize your deductions.
If you’re still on the fence about running a STR or a longer-term rental, check out our guide on determining the pros and cons of each rental operation.
