Airbnb Rental Taxes 101: When to Collect HST

While the potential earnings to be made through short-term Airbnb rentals are limitless, one thing remains certain - tax obligations. The CRA doesn’t have any problem with people making money off of vacation properties as long as it gets its cut.

As an owner, you're expected to pay taxes on your rental income, report all Airbnb earnings (regardless of frequency or amount), and remit GST/HST if your annual revenue exceeds $30,000. That last responsibility comes with a lot of confusion for first-time investors. Today, we're going to clarify it all so you can stay on the right and printable track as a property host.

Taxes, Fees, and HST

Several layers of taxes and fees go into real estate used for Airbnb. Owners need to understand and comply with them all if they want to remain above water and avoid run-ins with tax authorities.

The first key point is that guests in many Canadian cities already pay certain taxes, such as provincial sales taxes and municipal accommodation taxes, or tourism levies, as part of their booking. Airbnb may collect and remit those taxes on behalf of hosts automatically, but hosts remain responsible for verifying compliance and remitting any other applicable taxes themselves.

Income tax is the primary obligation for hosts, who must report all rental income earned from short-term stays in their annual tax returns, regardless of how often or how little they rent out the property. Eligible expenses like property maintenance, utilities, cleaning, management fees, and mortgage interest can generally be deducted but must be carefully documented and comply with current CRA rules. Importantly, from 2024 onward, tax deductions might be denied for expenses related to rentals that are not fully compliant with local short-term rental regulations.

If you're operating on a 'business level' (i.e., making more than $30,000 a year), the government expects GST/HST to be applied. That means registering for, collecting, and remitting a set percentage of each transaction. In Ontario, it's 13%. Other provinces have their own rates; Alberta charges 5% GST, while provinces like Nova Scotia, New Brunswick, and Prince Edward Island apply 15% HST.

In every case, sales tax is an unexpected cost that can greatly impact profitability in high-value homes.

Consider this example:

You own a short-term rental property in Ontario and earn $50,000 in gross rental income from Airbnb bookings over the course of a year. Since your earnings exceed the $30,000 threshold, you are required to register for GST/HST and charge 13% on each booking. This means you will collect an additional $6,500 in GST/HST from your guests over the year ($50,000 x 13%).

When it comes time to remit taxes to the CRA, you must send the $6,500 you collected. 

However, you can also claim Input Tax Credits (ITCs) to recover GST/HST paid on eligible business expenses such as cleaning services, repairs, utilities, and property management fees. For instance, if you paid $1,000 in GST/HST on these expenses, you can deduct this amount from your $6,500 tax liability, meaning you only remit $5,500 net to the government.

Calendar-Based Confusion

As if tracking and reporting weren't already complicated enough, an ongoing issue continues to confuse short-term rental owners throughout Ontario.

Per the CRA, HST is to be collected on all short-term accommodations of “less than a month”. Only, it doesn't define exactly how many days are in “a month” - it’s a grey area that can be interpreted anywhere from 28-31 days.

Our team has personally called the CRA’s HST department for clarification with no luck. Picture the typical experience - being transferred to four different “HST specialist" sub-departments to speak with different representatives who don't know enough to answer questions without help from a supervisor.

Some Airbnb hosts play it safe and collect HST in addition to the accommodation rate on every reservation less than 31 days. Doing so, however, risks becoming priced out by other hosts who don’t charge HST on stays over 27 days in length. It's only logical that guests booking for 28, 29 or 30 days chose the latter's listing over the alternate as it costs them 13% less.

Not accounting properly for GST/HST or failing to register can lead to AirBnb automatically collecting and remitting taxes on your behalf. That's a problem because it has the potential to affect both pricing and profitability. It may also cause compliance issues and potential penalties from tax authorities. Municipal fines for violating short-term rental laws can also reach up to $100,000 per day in some jurisdictions.

We recommend consulting with an expert to stay ahead of changing laws, properly register for GST/HST, claim legitimate deductions, and avoid unexpected tax surprises. Ultimately, treating your short-term rental like a business and staying compliant empowers you to protect your profitability while enjoying the financial benefits of hosting.