Tax Guide for Bed-and-Breakfast Owners: Declaring Income and Unique Deductions — CPA Firm Near You, Montreal

Introduction

Owning a bed-and-breakfast (B&B) can be profitable, but it also creates unique tax obligations that differ from traditional rental properties or restaurants. B&B owners must report mixed-use income, track guest-related expenses, and apply the correct GST/HST and QST rules depending on occupancy and services provided. Many owners lose significant deductions because they do not understand how to allocate expenses between personal and business use. This guide explains how B&B income must be declared, which expenses are deductible, and how a CPA firm near you in Montreal can help you stay fully compliant while maximizing tax efficiency.

Legal and Regulatory Framework

Under the Income Tax Act and Quebec’s Taxation Act, income earned from operating a B&B must be reported as business income if services such as meals, cleaning, or guest amenities are provided. GST/HST and QST may apply if short-term rentals or hotel-like services are offered, depending on occupancy length and revenue thresholds. B&B owners must maintain detailed records of revenues, guest bookings, platform fees, cleaning supplies, utilities, and property expenses. Because most B&Bs involve mixed personal and commercial use, expenses must be reasonably allocated based on square footage, number of rooms, or time-of-use. CRA and Revenu Québec require thorough documentation to support allocations and prevent denial of deductions.

Key Court Decisions

Courts have confirmed that when B&B owners provide substantial services similar to hotels or inns, income must be treated as business income, not rental income. In several cases, homeowners attempted to deduct full property expenses, but judges required proportional calculations based on personal use versus guest use. Other rulings emphasized that short-term rental income becomes taxable under GST/HST and QST rules if the property is used for commercial accommodation. Courts consistently uphold strict documentation requirements, particularly for mixed-use properties.

Why CRA and Revenu Québec Target B&Bs

B&Bs are frequently audited because many owners operate informally or list rooms through online platforms without proper registration. Tax authorities compare platform payouts, occupancy rates, and declared revenues to identify discrepancies. Auditors focus on expense allocations, GST/QST registration requirements, and whether services provided elevate the operation from simple rental income to taxable business income. Inconsistent bookkeeping, missing invoices, and cash payments increase audit risk.

Mackisen Strategy

At Mackisen CPA Montreal, we help B&B owners classify income correctly, allocate expenses fairly, and comply with GST/HST and QST rules. We set up complete bookkeeping systems, organize guest records, prepare allocation formulas, and ensure that deductions for utilities, renovations, insurance, interest, and property taxes meet CRA and Revenu Québec standards. We also help owners register for sales tax when required and recover eligible input tax credits. If a B&B faces an audit, we prepare documentation, defend the allocation method, and reduce potential reassessments.

Real Client Experience

A Quebec B&B owner rented three rooms in their home but lacked clear expense allocation. CRA challenged most deductions, claiming they were personal. We created an allocation model based on room size and occupancy rates, supported by invoices and booking records. The revised filings were accepted, the reassessment was reduced, and the client gained a clear tax strategy for future years.

Common Questions

Is B&B income considered rental income or business income?

If meals, cleaning, or guest services are provided, it is usually considered business income.

Do I need to charge GST/HST and QST?

If you exceed the small supplier threshold or provide short-term stays with hotel-like services, you may need to register and remit sales tax.

Can I deduct home expenses such as utilities?

Yes, but they must be allocated reasonably between personal and guest use.

Are renovations deductible?

Renovations may qualify for capital cost allowance or current expense deductions depending on their nature and documentation.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.