Short term rentals – mortgage helper traps and tips

Air bnb and other online short-term rentals are popping up everywhere.   Renting out your home or part of your home from time to time is a great way to bring in extra income.

But before you do, consider the following potential traps:

  1. Does your home’s municipal zoning allows you to sell short term rentals?  Does it require you to apply for a licence?
  2. Have you taken out extra property and liability coverage for this type of rental with your home insurance?   If not, you will likely null and void your policy with these rentals and ultimately defeat the purpose of having home insurance.
  3. If you live in a condo complex, have you checked with your strata?
  4. Consider the tax liability of rental income generated.  Short term rentals are considered business ventures, as such must be reported on your annual income tax return.  Have you planned for this tax expense?
  5. Consider potential tax implication with Canada Revenue Agency’s ‘change in use’ rule on your principal residence exemptions.   The rules have changed and you may incur additional capital gains tax now, or when you sell your home in the future.

Tips to counter these potential traps:

A. To avoid running afoul of government licensing requirements, fully understand zoning laws and abide by their requirements.

B. Speak with your insurance broker/agent about the potential change BEFORE you start your rentals.   It is not difficult for insurance companies to check if you’re violating the policy rules.  Your online ads are date stamped identifying when you’ve actually started making your home available for rentals.

C. To avoid penalties and levies from your strata, abide by its rules.

D. Speak with a tax accountant or lawyer BEFORE you start your rentals.   Understand fully the tax implications of your rental business and decide if this is still a venture worth your while to embark on.

Rental rules are complex and not as simple as just sharing your home in exchange for money.   A mortgage helper is nice but make sure you go in fully prepared and with your eyes wide open.