With Airbnb regulated, what are the tax implications for hosts?

As Vancouver becomes Canada’s first major city to regulate short-term home rentals, many prospective hosts have questions about how it could work for them.

Thousands of hosts in Vancouver have been renting out rooms and entire homes, operating in a legal grey area through online platforms, the largest of which is Airbnb. But starting in April, Vancouver homeowners will have to become a part of the city’s new regulatory regime for short-term home rentals, approved by council last week.

Becoming part of the city’s licensing system will cost a $49 annual licence and a $54 one-time activation fee. But some prospective hosts had questions about whether there could be other costs or implications to consider.

The typical Vancouver Airbnb host earns $6,500 annually from hosting, according to data provided this year by Airbnb to the city.

Here are some of the key questions of hosts:

• What are the rules around income taxes?

Income from short-term rentals should be reported to the Canada Revenue Agency at tax time, and Airbnb has been working with the CRA since last year to educate hosts about their tax obligations, said Lindsey Scully, a spokeswoman for Airbnb Canada.

Any Airbnb earnings — no matter how small — should be reported to the CRA, Scully said, but the company does not share any personal identifying information with the taxing authority to let them know names and addresses of hosts.

Soon, though, the City of Vancouver will have its own list of names and addresses of short-term rental hosts. The city said Friday that information will be shared, upon request, with the CRA and other government agencies.

In an emailed statement, City of Vancouver spokeswoman Ellie Lambert said city staff “recommend the provincial and federal government take steps to ensure that STR (short-term rental) operators pay sales and income tax per existing laws, including requesting access to city licensing information as required.”

“Names of licensed short-term rental operators will be provided to other government agencies upon request, and as required by law,” she said.

• Will renting a home for short-term stays cause some portion of my property to be changed from a residential class to a business class, thus attracting the commercial tax rate, which is about five times the residential rate?

It appears that is unlikely to affect many Vancouver Airbnb hosts.

Under B.C. regulations, homes operated as bed and breakfasts fall into the residential property class if they are owner-operated, unless they have four or more rooms available for rent for more than half of the year, said Paul Borgo, B.C. Assessment’s acting assessor for Greater Vancouver. 

Vancouver has more than 4,200 active Airbnb hosts and more than 80 per cent of their listings are available for fewer than 180 days a year, according to Airbnb’s data.

• Will using my home for Airbnb affect the capital gains exemption on my home?

Generally, when you sell your home, you don’t have to pay tax on any capital gains on the sale as long as it qualifies as your principal residence. Of course, in a red-hot market like Vancouver, with property prices rising dramatically, those gains can be substantial.

This could be a bit of a “grey area,” said Kin Lo, an accounting professor at the UBC Sauder School of Business, but it’s still unlikely that hosting short-term rentals will change a designation as a principal residence, especially if short-term rentals are for only a small part of a home or only a few days in a year.

“As the portion of the home that is rented out and the number days increase, then it becomes increasing risky that the property is not considered to be a principal residence because it is not being ordinarily inhabited by the owner,” Lo said. “In the extreme case where the property is only used for rentals, then it is clear that it does not qualify as a principal residence. Where one draws the line is subjective.”

Generally speaking, if a homeowner converts part of their property to an income-producing use, that portion may no longer be eligible for the primary residence exemption on capital gains. But in these situations, the CRA’s practice is to not apply the “change-in-use rules” based on certain conditions, including whether the income-producing use is secondary to the primary use of the property as a residence, said CRA spokesman David Morgan.

“There is no specific percentage or threshold which may be used in determining whether the particular change in use of a particular property is ancillary to the use of the property as the taxpayer’s principal residence,” Morgan said. “This can only be determined by a review of the particular facts and circumstances in each case.”

As always make sure you get advice from professionals especially a tax lawyer or accountant before you make a decision.

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