Ontario offers more than a stable financial prowess. It’s a province of vast forests and provincial parks, and one of the most remarkable features is the renowned Niagara Falls.
For those interested in renting their vacation property in Ontario, we’ve provided a tax guide to help you maximize your deductible expenses on your rental revenue while complying with Canada’s special rules.
What’s considered a short-term rental?
In Ontario, any rental property, including a residential property, apartment building unit, or condominium unit, rented for less than 30 consecutive days is considered a short-term rental (STR). Each Canadian city may have varying rules. For instance, in Toronto, any accommodation rented for a period of 28 days or fewer is considered an STR.
When should I report the rental income for my short-term rental?
Rental property owners in Canada should report all earnings on their income tax return by April 30, 2024. Self-employed taxes in Canada are due June 15, 2024.
A real estate or rental property owner is generally not categorized as self-employed because they often aren’t actively involved in business activities related to the rental home. A rental income is usually generated without much involvement from the rental property owner.
Property management is considered a business if you are a real estate agent who actively manages an STR by advertising, traveling to the property, and scheduling repairs and maintenance.
In Canada, some important dates for filing your taxes include:
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?
Any source of income generated from renting out your home, rental unit, or property, whether the lodging is brief or long-term, is taxable. Just like any other source of income, you must report it to the federal government on your personal income tax return. But don’t fret! By reporting this income, you may become eligible for associated deductible expenses.
The bottom line is that if you rent out a room in your primary residence or an entire property, you must report your earnings to the Canada Revenue Agency (CRA).
How do I report rental income for my short-term rentals?
The Canadian federal government recommends using a T776 Form to report rental income on a real estate rental to the CRA.
When people book places to stay in Canada using Airbnb, they must pay extra taxes. These taxes can be between 5% and 15% of the total cost of the stay, including any cleaning fees.
However, if someone stays for over a month, they don’t have to pay these taxes. Airbnb is registered with the Canadian government for taxes, and they have a special number for it.
Anyone who needs this number for tax reasons, like getting a tax credit for their stay, can use it. If someone renting out their place on Airbnb isn’t registered for taxes, they don’t have to worry about collecting or paying taxes themselves. Airbnb handles collecting and remitting taxes because the law requires it.
You must report all taxes and cleaning fees if you oversee temporary lodging and don’t use online marketplaces like Airbnb or VRBO. Airbnb isn’t obligated to collect taxes for hosts who are already registered for taxes under the law.
If you are actively involved in managing your short-term rental property, you may be eligible for additional deductible expenses. Follow these steps to report your taxes efficiently and maximize your rental property tax deductions.
Step 1: Gather the proper forms
Keep all receipts and documentation related to your rental activity organized, including operating expenses. That way, when the tax deadline nears, you can report your taxes effortlessly. If you earn an active business income, ensure you have all financial statements, like your annual property taxes and pertinent rental costs.
Step 2: Determine if you are earning a rental or business income
With business income, you’re actively involved in the day-to-day operations, making things happen. Passive earning is the type of rental income you earn from renting a STR, letting the dividends come in. It’s money earned with minimal effort.
Step 3: Reporting earnings from short-term rentals
In addition to reporting earnings on your personal tax return, you also report your income tax deductions. Using a T776 Statement will help you decipher your rental expenses and give you an idea of how much you can deduct and save.
Key tax deductions for short-term rentals
The biggest benefit of tracking all of your expenses, including current and capital expenses, is the key deductions you may be eligible to capitalize on.
If you are renting an area in a principal residence or an entire vacation property home, it’s essential to understand the interaction between Capital Cost Allowance and the T776 form.
The T776 form requires itemizing depreciable assets, including buildings, appliances, and furniture, to determine eligibility for CCA deductions.
Accurate reporting on the T776 form is essential to comply with tax regulations and optimize financial outcomes. As a part of the operating expenses, some homeowners who rent in Canada may qualify for deductions on their property taxes.
Here are some rental expenses you can potentially deduct when reporting your short-term rental income:
- Advertising
- Property insurance
- Interest and bank charges
- Office expenses
- Professional fees
- Management fees
- Maintenance and repairs
- Property taxes
- Travel expenses
- Utilities
- Motor vehicle expenses
- Property management fees
- Applicable soft costs
Other eligible expenses include capital expenses, which are costs used to renovate and ultimately significantly add value to the home. In addition to capital expenses, you can deduct current expenses used to maintain the home’s current condition.
When opting to lease your vacation home for short stays, you may need to sign up for a Goods and Services Tax (GST) and a Harmonized Sales Tax (HST).
Meeting higher rental income thresholds may qualify you for deductions on these taxes.
Consulting with a tax professional can help you determine your eligible deductions.
FAQ: Rental property tax deductions in Ontario, Canada
By deducting expenses, you can save on taxes. Your Capital Cost Allowance is the rate at which businesses can deduct the cost of depreciable assets from their taxable income. You may also qualify for additional deductions, such as travel expenses, some personal expenses, soft costs, and other capital expenditures. It’s crucial to keep all financial statements in order so that when it’s time to report your taxes with the Canada Revenue Agency, you can capitalize on deductible expenses.
Speaking with a tax professional will help ensure nothing falls through the cracks. As a bonus, you can deduct accounting fees for costs related to your business. Accounting fees include basic bookkeeping. Each provincial government may have different rules.
To estimate how much taxes you owe or refunds you owe, try the Turbo Tax Quebec income tax calculator and list your expenses, including your annual income and capital gains and losses.
The rental periods range from fewer than 30 to 28 days. If your guests or tenants rent your temporary accommodations for monthly periods, your apartment building units or residential property is not considered an STR—it is considered a long-term rental.
Airbnb rental income is subject to the GST or HST for rentals fewer than 30 consecutive days, and the rent charged is more than $20/day.
Our final thoughts
Overseeing vacation rentals can come with many benefits. These include earning a lucrative passive income while enjoying the property when it’s not occupied.
Consult our guide, offering professional insights when deciding between managing a long-term rental or short-term accommodation. Explore the reduced risks associated with temporary lodging and the potential for significant tax deductions from long-term rental operating expenses.
