Accounting for Law

Crucial to retain records when deducting Airbnb expenses

Taxpayers hoping to claim expenses related to their Airbnb activity should know that some will be fully deductible, but others need to be prorated — and the key to claiming any of these costs is to keep proper receipts and records, Canadian tax lawyer David J. Rotfleisch tells Global News.

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains, one cost that can apply entirely toward the purpose of supporting your Airbnb activity would be the cleaning expenses before and after a guest stays at your property.

However, he says, property owners need to do the calculations on expenses such as mortgage interest costs, property taxes, home insurance and utility bills. For example, if you only rent out part of your house, you’ll have to calculate what percentage of your home you’ve been using for Airbnb and then multiply that for the share of booked nights in the year, says the article.

The same idea applies to figuring out the portion of deductible expenses for things like the cost of washing your guests’ linens and towels, explains Rotfleisch.

“If you do a reasonable computation of how much it cost you to do laundry to clean the linens and the towels, the CRA is not going to challenge it,” he says.

The key, Rotfleisch tells Global News, is to keep all receipts as well as records of your calculations, in the case of an audit.

However, he adds, the line can be a bit blurred when it comes to repairs and renovations on the property.

If you’re renting part of your primary residence and are doing major renovations on the whole house, those costs wouldn’t be deductible, explains Rotfleisch. This is also true for routine repairs, he adds.

On the other hand, he says, upgrades specific to your rental property would likely qualify as capital expenses, as would repairs required by damage caused by guests.

Rotfleisch also commented on the subject of audits via a separate Global News article, telling the media outlet the Canada Revenue Agency's (CRA) suspicions wouldn't be raised by something like a taxpayer bragging on Facebook about new purchases that don't seem to line up with their income.

What might trigger an audit, he explains, is if you’re allegedly making $20,000 but live in a neighbourhood where the median income is $60,000, he says.

However, once the CRA is onto you, “absolutely, they’re going to be able to look at social media,” says Rotfleisch.

As Global News explains, the taxman can also discover your online activity by forcing Internet-based companies to release user data. For example, the CRA won a court case against eBay in 2008, which resulted in the release of records detailing the activity of so-called ‘power sellers.’

The government is able to take the same approach with sharing-economy providers such as Uber and Airbnb, says Rotfleisch.

“It’s something [the CRA has] been doing for some time now and will continue to do,” he explains.

As the article notes, Revenu Québec also recently won a court case against Uber.

“The law is pretty clear that the government is entitled to get this type of information, so I’m actually a little bit surprised that Uber tried to fight it,” says Rotfleisch.

To Read More David Rotfleisch Posts Click Here
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