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.

Print Friendly, PDF & Email

12 Comments

  1. Rosemary Wells on May 31, 2013 at 5:47 am

    I LOVE airbnb and so does my daughter. She has a number of places booked for Europe this summer and my husband and I are doing a motorcycle trip to Newfoundland through the US – it’s Airbnb all the way!

    I understand the concerns of the hotel industry. I have no problems with ordinary folks supplementing their incomes by renting out rooms for short term use. I would imagine they would probably have more expenses to write off than the income generated but those tax write offs help with other income streams. I have a big problem if the airbnb network is strictly a commercial enterprise trying to skirt the tax laws, health rules, etc.

    What is next? Taxing couch-surfing?

  2. Cat Alford (@BudgetBlonde) on May 31, 2013 at 6:26 am

    I’ve thought about that issue with air bnb before and websites like Fiverr. I’ll be interested to see where this debate heads!

  3. Miriam on May 31, 2013 at 7:46 am

    Bed and Breakfast has long been a way for homeowners to make some extra income and a fine way for a traveler to see a new city or town.

    I don’t think they have been considered ‘hotels’ and therefore subject to such things as hotel taxes but of course the income must be included – as well as expenses related to the rooms that are ‘let out’.

    • Anne @ Unique Gifter on June 3, 2013 at 1:12 pm

      There are actually quite specific laws surrounding the existence and taxation of B&Bs in Canada. Mostly they are the same types of things, business licence, liability insurance, minimum standards, health inspection of the kitchen and such.

  4. Judy on May 31, 2013 at 8:27 am

    You don’t have to charge GST if your business earnings are under $30,000/year.

  5. Janine on May 31, 2013 at 8:51 am

    Crazy! I just stayed at a place from Airbnb and I loved it. I’ll be really sad if in a couple years it’s no longer available. Do the same sort of issues occur for sites like VBRO?

    I’m sure part of this is a push from the hotel industry because they don’t want to have to lower their rates to remain competitive!

    • Echo on May 31, 2013 at 10:35 am

      I’m not sure Airbnb is as much of a threat to the hotel industry as it is to more traditional hostels.

      With VRBO, you’d certainly have to claim any income as rental income. I’d imagine the same sort of issue occurs for VRBO hosts too.

  6. James on May 31, 2013 at 10:30 am

    Missed opportunity to explore an important issue of tax. If a single guy rents out four rooms on short term basis his mortgage is more than paid for……from my knowledge, shared primary residence is tax free. Can you imagine if they tried to collect all the “taxes” from pple renting rooms to make rental payments. Lets call this what it is, hotel industry lobbying.

  7. Andrew @ She Thinks I'm Cheap on May 31, 2013 at 5:07 pm

    The liability side of things is very important and often overlooked. While 90% of guests will be great and won’t cause any problems, there’s always that unknown factor.

    My personal AirBnB experiences have all been good and (touch wood) neither my wife or I have heard any horror stories.

  8. Michael on May 31, 2013 at 6:52 pm

    While the government would love to tax the revenues, it’s virtually impossible to prove a cash transaction. I have rented from VRBO in the past paying cash and I doubt the owners claimed the income.

  9. Michael on May 31, 2013 at 7:05 pm

    @James technically any rental income should be claimed on you T1 regardless of primary residence or not, but as I said if its cash it’s very difficult to prove

    • Anne @ Unique Gifter on June 3, 2013 at 1:15 pm

      There are actually tax law exceptions when you have a long term rental for shared accommodation ( a room in your house) though I’m not sure how they extrapolate to the short term version.

Leave a Comment