Short-term rentals through Airbnb, VRBO, and similar platforms have become a significant source of income for thousands of Canadians. But with that income comes tax complexity that catches many hosts off guard. Whether you rent a spare room, your entire home while you travel, or a dedicated investment property, here is what the CRA expects and how to minimize your tax burden legally.
The distinction matters significantly for how you report it. The CRA determines whether your short-term rental is rental income or business income based on the level of services you provide to guests:
Rental income (T776): If you simply provide accommodation with minimal services — guests arrive, stay, and leave without you providing cleaning, meals, or hospitality services — this is generally treated as rental income. Report on Schedule T776 (Statement of Real Estate Rentals).
Business income (T2125): If you provide significant services comparable to a hotel (daily cleaning, meals, concierge services, tours), the CRA may consider this a business. Report on T2125.
Most casual Airbnb hosts with some guest support fall into a gray zone. Many report as rental income; if you provide extensive services, seek advice. The difference matters primarily for CPP: business income attracts CPP contributions; rental income does not.
Report gross rental income — the full amount paid by guests before Airbnb's service fee is deducted. The Airbnb service fee is a deductible expense, but the gross amount must be reported first. Your annual Airbnb earnings summary shows both the gross booking amount and Airbnb's host fee separately. Report all of:
The service fee (typically 3% for hosts) that Airbnb deducts from your payouts is a fully deductible business expense. It's visible in your annual earnings summary.
If you rent a portion of your home (a basement suite, spare bedroom), you deduct expenses proportionally. Calculate the percentage of your home that is rented (by square footage) and the percentage of the year it's rented. Then apply those percentages to eligible home expenses:
Example: If your rental suite is 25% of your home's square footage and you rent it for 10 months of the year, you can deduct 25% × (10/12) = 20.8% of those shared costs.
Some expenses apply entirely to the rental unit and are fully deductible:
Large assets like furniture, appliances, and the building itself (for dedicated rental properties) are depreciated over time through CCA. This creates ongoing annual deductions. Be cautious about claiming CCA on the structure of a personal residence you plan to eventually sell — it can trigger capital gains on the claimed amount.
If you rent part of your home on Airbnb while still using it as your primary residence, you can still claim the principal residence exemption for capital gains purposes when you sell — as long as the portion you rented doesn't change the fundamental character of the property. Generally, if you haven't made structural changes to create a separate unit and you still occupy the home, you'll be fine. However, converting a portion to a dedicated rental unit can create a partial disposition and affect your exemption.
Short-term rentals (30 days or less) are taxable for GST/HST. Once your total short-term rental revenue exceeds $30,000 in four consecutive quarters, you must register. At that point, you'll add GST/HST to your nightly rate and collect it from guests. You can then claim ITCs on business-related expenses with HST.
Long-term rentals (more than 30 consecutive days) are HST-exempt. If you transition between short and long-term rental periods, careful tracking is required.
Beyond CRA taxes, many municipalities now have specific rules for short-term rentals: licensing requirements, principal residence rules, caps on rental days, and local accommodation taxes. Toronto, Vancouver, and Montreal all have STR regulations. Ensure you're compliant at the municipal level — fines can significantly impact your income.
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Open KOHO Free — No Fees — Code 45ET55JSYAKeep records for six years from the end of the tax year. Essential records include:
If you're earning significant Airbnb income, own a dedicated short-term rental property, or are unsure about the rental vs. business income question, an accountant experienced with short-term rentals is worthwhile. The tax rules around partial-home rentals, principal residence exemption, and HST are genuinely complex, and an error can cost significantly more than professional advice.