Income earned from renting out your spare room is taxable

Are you offering a spare room in your house, your whole house or a holiday home on Airbnb? You need to be aware that it will be subject to tax and possibly GST.

When Brian Chesky and Joe Gebbia came up with the idea of earning a bit of extra rent money income from letting out spare space in their loft apartment in San Francisco in 2007, it is doubtful they gave any thought to potential global tax consequences.

Rental income of any sort is taxable under the Income Tax Act and deductions relating to that income are allowed. The deductions are sometimes limited under apportionment rules or Mixed Use Asset Rules.

Airbnb has taken off worldwide and can be a good additional income earner, but bear in mind that this income is subject to income tax and we recommend you keep records of all your income and expenditure to provide us at the end of the year.

Room rental is taxable income

The expenses you can claim when renting out a room in your private home, or the entire home itself, will be subject to the apportionment rules. Your holiday home on Airbnb or other online rental sites will be subject to Mixed Use Asset rules.

Most people are unaware that the income received form short-term rental income qualifies as a commercial undertaking and is considered a taxable activity under the GST legislation. (In most cases, an Airbnb or B&B operation is considered a commercial dwelling.)

The threshold for GST registration is $60,000 per annum before any deductions of commission or other expenses. In the case of a company ownership, this also includes income ‘derived’ from private use at market value.

This means that not only will the income be subject to GST but also your home will be caught in the GST net. The GST liability will occur when the property is sold or when the B&B operation ceases (whichever is first). GST will be calculated on a portion of the sale price or market value, but the input adjustment is limited to a portion of the original cost of the home.

When deciding to use your home on Airbnb, or any other short-term rental site, we would suggest you contact us to discuss the income tax, GST, and ownership implications.

Published spring 2017.

Serious about your success?