Does Short Term Rent Count as Income in Ontario?

Is Your Short-Term Rental Property Generating Taxable Income?

The rise of platforms like Airbnb and VRBO has opened new revenue streams for property owners. You might rent out a spare room, a basement apartment, or even your entire cottage when you are not using it. This can be a great way to help with mortgage payments or save for a future project. Many property owners ask, does short term rent count as income in Ontario? The simple answer is yes, it does. Any money you earn from renting your property is considered income and must be reported to the Canada Revenue Agency (CRA).

Understanding this is the first step. The next step is figuring out how the CRA views this income. It is not always as simple as just adding a number to your tax return. The government may classify your earnings as either rental income or business income. This distinction is important because it changes how you report the money and what expenses you can claim. Knowing the difference helps you stay compliant with tax laws and manage your finances effectively. It ensures you pay the correct amount of tax while taking advantage of all eligible deductions.

Rental Earnings and Business Profits: What’s the Difference?

The government treats money from property rentals in two main ways. It can be rental income or business income. The difference depends on the number and type of services you provide to your guests. If you simply offer them a place to stay with basic amenities like heat, hydro, and parking, the CRA usually considers your earnings as rental income. You are providing shelter, and the income generated is passive. This is the most common scenario for property owners who list a space for short-term stays without many extra features.

Your earnings may become business income if you provide additional services. These services go beyond what a typical landlord offers. Examples include providing meals, daily cleaning services, security, or laundry services. If you operate your rental like a hotel or a bed and breakfast, you are likely running a business. The CRA will then classify your income as such. This changes how you file your taxes and affects the types of expenses you can claim. Understanding this classification is vital for correct tax reporting and financial planning for your property.

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Maximizing Your Deductions and Minimizing Your Tax Bill

One of the benefits of reporting rental income is the ability to deduct expenses. These deductions lower your net rental income, which reduces the amount of tax you owe. You can only deduct expenses that you paid to earn the rental income. If you use part of the property for personal use, you must prorate the expenses. For example, if you rent out a room that makes up 20% of your home’s square footage, you can generally deduct 20% of shared household expenses like utilities and property taxes. You must calculate this proration carefully.

Many common expenses are deductible. Keeping track of them throughout the year can lead to significant tax savings. Here are some of the expenses you can typically claim:

• Advertising

  Costs for listing your property on rental platforms or other websites.

• Insurance

  The portion of your home insurance premium that covers the rental space.

• Interest

  The interest portion of your mortgage payments, but not the principal.

• Maintenance and Repairs

  The cost of labour and materials for minor repairs to keep the property in good condition.

• Property Taxes

  The percentage of your property taxes that applies to the rental portion of your home.

• Utilities

  The share of hydro, heat, water, and internet costs used by the rental.

Sales Tax on Short-Term Stays

Beyond income tax, you may also need to manage the Harmonized Sales Tax (HST). HST applies to most goods and services, including short-term accommodations. A short-term accommodation is a rental period of less than 30 continuous days where the daily rate is more than $20. If your property falls into this category, you may need to charge your guests HST. This depends on your total revenue. The government has a “small supplier” threshold to simplify things for smaller operators. This threshold is $30,000 in worldwide taxable sales over four consecutive calendar quarters.

If your total revenue from all your taxable activities, including your short-term rental, is below $30,000, you are a small supplier. You do not have to register for an HST account or collect HST from your guests. However, once your revenue exceeds this $30,000 threshold, you must register for HST. You will then need to start charging HST on your rental fees and remit the collected tax to the government. Registering for HST also allows you to claim Input Tax Credits (ITCs) on the HST you pay for your business expenses, which can help offset the tax you remit.

Complying with Local Bylaws for Short-Term Rentals

Following federal tax laws is only one part of responsibly managing a short-term rental. You must also comply with rules set by your local municipality. Many towns and cities have implemented specific bylaws to regulate the short-term rental market. These rules exist to address community concerns about housing availability, noise, and neighbourhood character. They vary significantly from one municipality to another, so you need to research the specific regulations that apply to your property’s location. This is a critical step before you even list your property for rent.

For example, some major cities require hosts to register their short-term rental with the city and obtain a licence or permit. There may be rules stating that you can only rent out your principal residence, not a secondary or investment property. Municipalities may also levy a Municipal Accommodation Tax (MAT) on all stays, which you would be responsible for collecting from guests and remitting to the city. Ignoring these local bylaws can lead to substantial fines and penalties. Always check your local municipal government’s website for the most current information and ensure your rental operates in full compliance with all local laws.

Conclusion

Earning money from a short-term rental is a fantastic opportunity, but it comes with clear responsibilities. The income you generate is taxable and must be declared accurately. Distinguishing between rental and business income will guide you on how to report it and what expenses you can claim. Diligent record-keeping of all your earnings and costs is not just good practice; it is essential for tax compliance. This discipline will help you maximize your eligible deductions, from mortgage interest to platform fees, ultimately lowering your tax liability and improving your net profit.

Remember that federal tax obligations are just one piece of the puzzle. You also have to navigate HST rules and adhere to your local municipal bylaws, which can include registration, licensing, and specific taxes. Staying informed about these regulations ensures your rental operation is legal and sustainable. Because every situation is unique, seeking advice from a qualified accountant is a wise investment. A professional can provide guidance based on your specific circumstances, helping you manage your rental property successfully and with complete peace of mind.