Airbnb and Short-Term Rentals – Tax Implications: A Complete Guide by a Montreal CPA Firm Near You

Introduction

Short-term rentals on platforms like Airbnb, VRBO, Booking.com, Expedia, Sonder, and Boutique rentals have become extremely popular across Canada. But many hosts do not understand the tax rules. CRA treats short-term rental income differently than long-term rental income, and in some cases, short-term rentals may be taxed as a business, not a simple rental. On top of federal income tax, short-term rentals may trigger GST/HST or QST obligations, municipal lodging taxes, loss of principal residence benefits, and higher audit risk. This guide explains everything Airbnb hosts need to know about tax reporting, deductions, GST/HST registration, and compliance.

Legal and Regulatory Framework

Short-term rental taxation is governed by the Income Tax Act, the Excise Tax Act (for GST/HST), the Quebec Sales Tax Act (QST), municipal bylaws, and platform reporting rules. CRA requires all short-term rental income to be reported, regardless of amount. If your total worldwide taxable revenues exceed $30,000 in four consecutive quarters, you must register for GST/HST (and QST if in Quebec). Properties rented for less than 30 days generally count as commercial activity, meaning GST/HST applies unless specific exemptions exist. Municipalities like Montreal, Toronto, Vancouver, and Quebec City require permits and may require hosts to remit lodging taxes directly or through Airbnb.

Key Court Decisions

In Gauthier v. Canada, the court ruled that frequent short-term rental activity constituted a business, not rental income, due to services provided. In Meech v. Canada, the court upheld CRA’s reclassification of Airbnb revenue as business income because of cleaning and guest services. In Bruneau v. Québec, improper allocation between personal and rental use led to reassessment by Revenu Québec. In Reid v. The Queen, GST/HST was found applicable to short-term rental services. These cases show how short-term rentals can easily fall into taxable business categories.

Why Airbnb Hosts Face High CRA Audit Risk

CRA and ARQ receive data from Airbnb and other platforms. CRA compares Airbnb income to: T-slips, GST/QST filings, bank deposits, municipal licensing records, and lifestyle indicators. Red flags include inconsistent rental income reporting, excessive expense claims, no GST/HST/QST registration despite passing $30,000 in revenue, claiming principal residence exemption after Airbnb use, or failing to allocate personal and rental portions accurately. Airbnb hosts are one of CRA’s top audit targets.

Taxation of Short-Term Rental Income

Short-term rental income must be reported as either: rental income (if minimal services), or business income (if substantial services like daily cleaning, meals, concierge support, or property management). Business income allows more deductions but is fully taxable and may trigger CPP/QPP obligations. Rental income is reported on Form T776, while business income goes on Form T2125. Improper classification can result in reassessments, penalties, or GST/HST audits.

GST/HST and QST Requirements

Short-term rentals under 30 days with services similar to hotels are generally taxable supplies. If your revenues exceed $30,000 in four quarters, registration is mandatory. Once registered, you must: charge GST/HST (and QST in Quebec), file returns, remit collected tax, claim input tax credits (ITCs), or input tax refunds (ITRs in Quebec), and keep compliant invoices. Even before reaching $30,000, some hosts voluntarily register to recover ITCs/ITRs on large expenses such as renovations, furniture, appliances, and cleaning services.

Deductible Expenses for Airbnb Hosts

Airbnb hosts may deduct part of: mortgage interest, property taxes, condo fees, utilities, insurance, cleaning fees, supplies, platform fees, advertising, depreciation (CCA), internet, furniture, maintenance, repairs, and professional fees. However, expenses must be allocated based on the portion of the home and number of days rented. Personal-use portions are not deductible. Capital improvements must be capitalized. CCA must be used cautiously—it can eliminate principal residence exemption.

Municipal Regulations and Compliance

Cities like Montreal, Toronto, Vancouver, Ottawa, and Quebec City require: short-term rental permits, compliance with zoning rules, display of permit numbers on Airbnb listings, and payment of local lodging taxes. Penalties for non-compliance can be significant, including fines and removal of listings.

Mackisen Strategy

At Mackisen CPA Montreal, we help Airbnb hosts comply with federal, provincial, and municipal tax rules. We categorize revenue correctly, calculate rental vs personal portions, determine whether the rental is a business, register and manage GST/HST/QST accounts, prepare Form T776 or T2125, evaluate the risks of CCA, defend claims during CRA/ARQ audits, reconstruct missing records, and integrate municipal compliance into your full tax strategy.

Real Client Experience

A Montreal condo owner renting on Airbnb exceeded $30,000 without registering for GST/QST; we registered them retroactively and negotiated reduced penalties. A host advertising daily cleaning was reclassified as a business; we corrected filings and avoided gross negligence penalties. A homeowner lost part of the principal residence exemption due to extensive Airbnb use; we restructured future rental planning. A duplex owner renting the basement suite passed audit after we prepared complete allocation schedules and receipts.

Common Questions

Is Airbnb income taxable? Yes—100% of it. Do I need GST/HST registration? Yes if revenues exceed $30,000, and sometimes earlier. Can I deduct renovations? Yes if capitalized correctly. Does Airbnb report my income to CRA? Yes—CRA receives platform data. Does Airbnb affect my principal residence exemption? Yes—CCA and extensive rental use may reduce it.

Why Mackisen

With over 35 years of combined CPA experience, Mackisen CPA Montreal helps Airbnb and short-term rental hosts optimize deductions while staying fully compliant with CRA, ARQ, and municipal regulations. Whether you host occasionally or run a full-scale rental operation, we protect your income, minimize your tax burden, and defend you during audits.