Quebec, one of Canada’s largest provinces, has an inherently distinguished identity shaped by French influences and traditions. From the quaint streets of Old Quebec City to the lively metropolitan Montreal, Quebec provides the perfect escape for tourists.
What’s considered a short-term rental?
In Quebec, a short-term rental (STR) is any type of rental property, either an entire residential property or part of a primary residence, leased to tourists for fewer than 31 days.
When should I report the rental income for my short-term rental?
Always jot down all the significant dates for tax filing in Canada to facilitate reporting taxes. Below are the deadlines for filing your income taxes to the Canada Revenue Agency (CRA).
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?
In Quebec, income tax returns must be filed with the CRA every year. Though filing taxes might seem daunting, understanding how it works and staying organized can simplify the process while ensuring compliance with Canada’s federal government. Renting out your STR can have significant tax implications.
How do I report rental income for my short-term rentals?
Individuals who earn an income from renting out property are required to submit an economic statement detailing their rental income and eligible expenses incurred during the period. This statement should encompass the income and expenses from January 1 to December 31 of the tax year.
The lodging tax rate may vary in different regions. Online platforms, such as Airbnb and VRBO, may be responsible for collecting and remitting taxes. Airbnb collects a lodging tax in Quebec’s 22 tourist regions.
The Canadian federal government advises rental property owners to use the T776 Form to report their rental income and related expenses. This comprehensive guide, included in Quebec’s income tax package, serves as a valuable resource for understanding the tax filing process.
Follow these steps to help you get started and streamline the tax reporting experience.
Step 1: Gather the proper forms
It is fundamental to have all of the necessary forms on hand and maintain thorough records to back up your purchases and operational costs. This includes keeping receipts, invoices, financial statements, and documentation detailing significant improvements to your home, essentially adding value to your property.
Step 2: Determine if you are earning a rental or business income
Most of the time, leasing out an STR is categorized as earning a passive income. It’s an investment that earns profits with minimal effort on the homeowner’s part.
For instance, when homeowners rent out a property solely for vacation purposes, providing only basic amenities that include heating, electricity, parking, and on-site laundry facilities, the vacation property owner is earning a passive income.
When you go the extra mile by offering additional services, like cleaning, maintenance, security, meals, and transportation, or if you are actively involved in the operations of multiple residential properties and handle the advertising and upkeep yourself, your position elevates to more than owning and leasing an STR. Most provincial governments may consider active involvement in rental operations as self-employment that earns a business income.
Step 3: Reporting earnings from short-term rentals
Using a straightforward T776 Form, you can easily complete sections for gross rent, rental expenses, and capital cost allowance (CCA). This simple step will help you accurately determine your rental income and loss, ensuring you stay on top of your financial obligations.
The three types of losses are rental, business, and capital loss, each with its own tax implications. 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.
Key tax deductions for short-term rentals
If you invest in your property by revamping or adding a significant update that increases the value of your home, those count as capital expenses. The Canadian federal government will view those costs as deductible expenses. Current expenses are costs incurred from services that maintain your property’s condition, such as pool cleaning or adding a fresh coat of paint to an interior wall. It’s essential to keep an accurate log of these receipts to maximize your income tax deductions. Other deductible expenses you may be eligible for are property taxes.
You may deduct property taxes during the period you leased your rental property.
FAQ: Rental property tax deductions in Quebec
If you are filing taxes for the first time, seek the guidance of a tax professional specializing in rental income tax deductions. Here is a list of eligible expenses you may be able to deduct:
- Insurance premiums
- Advertising fees
- Salaries, wages for property managers
- Utilities
- Travel costs
- Property taxes
Significant renovations may count as capital expenses. Keep a record of your financial statements associated with rental fees and renovations to claim on your T776 Form.
If you earn a rental income that is below the fair market value in Quebec or is a cost-sharing arrangement, you do not have to report those earnings and can’t claim deductions. For instance, if your rental expenses are above the rental income, you should not report your income. If you are sharing the rent with a roommate or child to supplement the upkeep expenses of your property, it does not count as rental income.
Our final thoughts
Are you considering whether to manage a long-term rental or short-term accommodation? Review our guide to explore the reduced risks associated with temporary lodging and the potential for substantial income tax deductions related to long-term rental operating expenses.
