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Is rental income from short-term rentals taxable?

Yes, if you rent out a portion or your entire property using short-term rental sites such as AirBnB and Vrbo, you must declare the income in your tax return. You must produce the T776 form with your tax return to declare the income.

Are expenses I incur for the rental deductible?

Yes, you can claim expenses against your rental income. Examples of expenses you can claim:

• Property taxes
• Mortgage interest
• Repairs and maintenance
• Utilities
• Depreciation

Once you deduct these expenses against your rental income, you will calculate your net rental income. You will be taxed on this amount.  

What changes did the government announce?

Specifically dealing with expenses for a short-term rental, the federal government will disallow claiming expenses against your rental income if:

• Short-term rentals are not permitted in your province or municipality
• Short-term rentals ARE permitted in your province or municipality, but you do not have the proper license, permit, or registration to offer the rentals

Because you can no longer deduct your expenses against your rental income if you’re in one of the situations above, your tax will increase since you will be declaring more income on your tax return.

How do I fill in the rental form?

As mentioned above, you must complete the T776 form to declare your rental income and expenses. As a first step, when entering your gross rental income, you must specify the portion of your rental income that comes from a short-term rental.

 Second step, you must distinguish your short-term rental expenses from your long-term rental expenses. Two separate entries will be provided on the form itself to enter both amounts.

Third step, if a portion or all of your short-term rental expenses are disallowed (non-compliant) due to the new rules mentioned above, you must calculate your non-compliant portion of your expenses by providing the following information:

• Address of the property
• Unit number
• Short-term portion of rental expenses
• Number of days the short-term rental was non-compliant
• Number of days the property was a short-term rental

Once this information is provided, you can calculate the non-compliant portion of short-term rental expenses through this formula:

Short-term portion of rental expenses X (Number of days the short-term rental was non-compliant / Number of days the property was a short-term rental).

Key takeaway

The key takeaway to consider if you have a short-term rental is to setup a proper accounting system to log your short-term rental income and expenses. Even if you do not meet the conditions above, the government will still require you distinguish between short-term rental income/expenses from long-term rental income/expenses.