Determining whether you are considered as a resident or non-resident of Canada can be quite confusing given the fact that receiving rent from Canadian real estate or disposing of Canadian real estate can make you subject to Canadian income taxes. This article will help provide guidance for U.S. Residents who have Airbnbâ€™s in Canada and the respective reporting requirements.
If you are a non-resident of Canada and you have taxable rental income in Canada as a result of your Airbnb taxes, you will be required to pay Canadian income taxes. However, the tax rate can be offset by the income tax treaty between Canada and the United States. Since you are receiving rental income, you should follow the rules as outlined in T4144 Income Tax Guide for Electing Under Section 216.
Your Canadian agent or the renter of the property is required to remit a 25% withholding tax to the Canada Revenue Agency (CRA) on the gross rental income paid or credited to you. They must also give you two copies of an NR4, Statement of Amounts Paid or Credited to Non-Residents of Canada, slip showing the gross amount of rental income paid or credited to you during the year and the amount of non-resident income tax that was withheld. The payer must also file an NR4 information return with the CRA.
In most cases, this will be the total of your tax obligation to Canada. However, you can make the election under section 216 of the Income Tax Act, which means that you send a separate Canadian tax return to report your rental income, in order to reduce the amount of tax that you owe.
This designation may reduce your taxes because it allows you to have tax withheld on your net rental income instead of on the gross amount. In addition, these withholding taxes are then considered as a credit against the taxes due when you file T1159, Income Tax Return for Electing Under Section 216 by June 30th. You can also use Form T1159 to claim deductions for expenses related to your rental property.
In order to use section 216, a Canadian agent acting on your behalf must file Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, and have it approved by the CRA.
If you are considered as a resident of Canada, you will have to follow the taxation rules for residents. In Canada, Airbnb hosts, except for Quebec residents, are required to remit taxes on their Airbnb income to the CRA. If you include standard services that are common to all rentals, such as heat, electricity, in-suite laundry facilities, and parking, your earnings from rental activities will likely be considered as rental income. However, if you provide additional services, such as cleaning, security, or meals, you will like be considered as a business.
If you are a sole proprietor and your Airbnb earnings are considered as business income, you will have to use Form T2125, Statement of Business or Professional Activities, to calculate your business income and expenses. If you have rental income, you must use Form T776, Statement of Real Estate Rentals. Depending on your reporting period, you may be required to file and remit payments on a monthly, quarterly, or annual basis. For most individual taxpayers, income tax returns are due on April 30th of each year.
You are also required to keep detailed records of all of your rental income and expenses with invoices, receipts, contracts, or other supporting documents for six years from the end of the tax year to which they relate.
Self-employed individuals and employers are required to pay Canada Pension (CPP) contributions and Employment Insurance (EI). By the last day of February each year, they are required to file Form T4SUM, Summary of Remuneration Paid and to each employee a Form T4, Statement of Remuneration Paid slip to CRA. For Quebec residents, information on Quebec Pension Plan (QPP) contributions can be found here.
Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and Provincial Sales Tax (PST)
Both non-residents and residents may be required to pay goods and services tax and sales tax on their rental activities. Airbnb hosts who earn more than $30,000 in four consecutive fiscal quarters or in a single quarter are required to register for a GST/HST account and pay the applicable Goods and Services Tax (GST)/Harmonized Sales Tax (HST).
Depending on when you exceed this threshold, you will be required to register as soon as you stop being considered as a small supplier or at the end of the quarter in which you stopped being a small supplier. However, the rules regarding Provincial Sales Tax (PST) vary from province to province. Quebec does not participate in the HST system and instead administers its own Quebec Sales Tax (QST).
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