The short term vacation rental site AirBnB has been making lots of headlines in the last week but not for the right reasons.  News has been circulating that local governments, including Quebec, are taking issue with several aspects of the wildly popular website.

Taxes, permits, and the effect of increased tourism in local communities have been raised by the US, Canada and other countries as well.

Declaring Airbnb Rental Income

On the subject of taxes, there are a few issues.  The first is that hosts who rent out rooms in their homes might “forget” to declare the income.

Form T776 is what is used by Canadians at tax time to declare rental income.  You should definitely consult your accountant to understand what you need to do to make sure you are compliant with the tax man.

If you are declaring the rental income you can also claim expenses.  Here is AirBnB’s help page for tax related questions.

Rental income is added to your regular income and is taxed at the same rate.  If you make $75,000 per year and have another $2,500 in rental income from a site like AirBnB, your income for the year will be $77,500 and will be taxed accordingly.

AirBnB has a lot of information for US residents/hosts, but not much for hosts in other countries.

Related: How To Generate More Income – Use AirBnB

Charging Sales Tax

The second tax issue relates to a special hotel tax that is tacked on to a hotel bill in certain cities.  San Francisco for example has a 15% hotel tax that hosts in the city aren’t charging and remitting to the government.  Paris, Rome, Venice and other European countries have similar taxes as well.

Lastly, you also might need to charge sales tax (VAT/HST/etc) on your rental as well.

To better understand how this all comes together, here’s an example.

Let’s say a host rents out a room for $100 per night for 25 nights over the course of the year and earns $2,500.  If they don’t declare the income that goes straight to their pocket and there is nothing for the government.

Related: Ways To Make More Money

If a host rents out a room in a city where all three tax situations apply, things would look much different.

  • Room Rate – $100
  • Sales Tax – $13 (13%)
  • Hotel Tax – $15 (15%)
  • Total Room Rate – $128

The $2,500 earned with an income of $75,000 per year would translate into $1,675 after tax.  As you can see, governments have a lot to gain by ensuring those who are making a lot of money this way pay their taxes!  They will get the tax income from guests as well as hosts.

Do You Need A Permit?

The next issue is permits.  Cities and hospitality associations don’t like the fact that someone can rent out a room in their home and not have to conform to the same rules and regulations of the hospitality industry.  The industry feels they are being put at a disadvantage.

Related: 3 Ways To Save Money On Your Family Vacation

While I’m not an expert on this topic, these permits probably ensure that a hotel is registered, clean and safe.

Changing the Tourism Landscape

The next argument, which I am a little unclear on, is that a neighbourhood might be adversely affected if a large number of tourists start residing there through short term rentals.

Imagine a quaint little town or street that never had any tourists before, then some investors come in, buy a few properties and turn them into short term rentals.

In a short period of time the feel of the neighbourhood could change significantly and impact residents.  I think the taxes and permit issues are bigger than this one but it’s certainly something to think about.

Final Thoughts

As you can see there are numerous issues being debated relating to short term rentals like Airbnb.  The fact that all of this is going on means the business model is not only working but booming.

Related: The Many Hidden Costs Of Travel

While governments might not focus on the little guy who makes a thousand dollars a year on the side, larger operations will probably receive a lot more scrutiny.  A balance will need to be struck between collecting taxes and ensuring guests are protected and fostering a successful business.

Andrew is a Canadian personal finance and investing blogger who recently moved to London, England.  He has a background in technology and a passion for travel.  His blog, She Thinks I’m Cheap aims to help Canadians build wealth by sharing facts, stories and advice.

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