“Let’s get down to brass tacks” is a phrase my father used all the time. It meant we needed to get focused on the basics or what was important; to stop beating around the bush and get to the root of the issue. The Getting Down to Brass Tax newsletter follows the same approach – to offer you practical guidance on commonly misunderstood Canadian tax rules.
So, let’s get down to Brass Tax on Airbnb rentals!
Buyer beware – as with most tax rules, the answer depends very heavily on the facts of a given situation. One small change can lead to a very different result. It is important that you speak with your own tax advisor to ensure you are getting the best advice for your situation.
Here’s today’s scenario:
I bought a house this year near the beach in my hometown, Yarmouth, Nova Scotia. I plan to live in the house when I retire, but for now I am listing the house on Airbnb between June and August each year. From September to May I’ll rent it to students. I own the house personally and am also the sole shareholder of a corporation that has over $30,000 in annual taxable sales and is and HST registrant.
This past summer I earned about $14,000 from short-term rentals, which is almost as much as I will earn from the long-term rentals over the winter. Since I am not personally registered for HST, Airbnb collected HST on the rentals. According to their Help Centre (article 2283), “hosts with Airbnb listings who aren’t registered won’t have any obligation to collect and remit the GST, HST, and/or QST on their accommodation themselves. The National Law will require Airbnb to collect and remit these taxes on their behalf.”
What a relief! I don’t have to worry about registering for HST for the Airbnb rentals, right?
WRONG – potentially for a few reasons.
Issue 1: Guilt by association (the small supplier rules).
Airbnb (and other Accommodation Platform Operators) have to collect and remit GST/HST on rentals when they do not have the host’s GST/HST registration number. However, this does not waive the host’s own obligation to register for, collect and remit GST/HST themselves if, among other things, they are not a “small supplier.”
Basically, a small supplier is a person (including a sole proprietor) whose taxable sales do not exceed $30,000 in the last four consecutive calendar quarters, including the sales of their associates. For HST purposes, the term “associated” includes the same criteria as defined for corporations in the Income Tax Act, but also includes individuals (ie. sole proprietors).
Here’s the point: Since I control my corporation, I am “associated” with it for HST purposes. This means my Airbnb business is not a small supplier, even though it’s Airbnb earnings are below the $30,000 on their own.
As a result, I should have been registered for HST on the day of the first Airbnb booking.
Issue 2: Being registered versus being a registrant.
Even if you do not apply for a GST/HST registration number, you may still be a “registrant.” By definition, a “registrant” is someone who is registered or who is required to be registered for HST. This means that my Airbnb business was deemed to be a registrant on the day of its first taxable sale. If I am audited by the CRA, they could reassess HST owing on sales back to that date.
Issue 3: How will they know?
Effective for calendar year 2024, there are a few ways that Airbnb income gets reported to the CRA:
Reporting short-term rental income on your T1 Personal Income Tax Return. I have to disclose income from short-term rentals on Schedule T776 of my personal tax return. If that income is in excess of $30,000, or if my personal return is matched with my associated corporate return (through my social insurance number) I might receive a letter from the CRA inquiring about HST registration for the sole proprietorship.
Information returns filed by platform operators. Since 2024, Airbnb and other Accommodation Platform Operators file annual information returns with the CRA. These include information such as the host’s name, social insurance number or business number, provincial or municipal registration number, etc. My personal opinion is that it is only a matter of time before this information is used to select hosts for CRA review or audit.
CRA’s “Short-Term Rental Enforcement Fund.” This is a program designed to crack down on non-compliant short-term rentals. While its main goal is to provide more long-term housing units in Canada, it is possible that information collected could be used by the CRA for other purposes, including review of HST registration status. See Housing, Infrastructure and Communities Canada – Short-Term Rental Enforcement Fund.
What should you do if you’ve made a mistake?
If your short-term rental business is relying on Airbnb to collect and remit HST on your behalf you could be subject to interest and penalties on the GST/HST you SHOULD have collected and remitted yourself. Talk to your tax advisor about ways to resolve the issue, including effectively communicating with the CRA on your behalf.
Want to learn more? Book a call or meeting to discuss.
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