Claiming Your Airbnb Income In Canada

As the sharing economy continues to grow an increasing number of startups are being developed that provide everyday people with the opportunity to increase their income streams. This is causing the average person’s tax return to become much more complicated than it would be with a simple T4 income.

First things first YES you need to claim your AirBNB income. It may be your “fun money” but to the government it’s income and it won’t be fun income if you don’t claim it and the government finds out.

How to Claim This Income

Airbnb income is considered rental income so long as you don’t include meals, personal laundry services, and other tourism services to your guests, in that case, it’s going to be business income.  

If it’s confirmed rental income you need to complete a T776 (Statement of Real Estate Rentals) and declare the income on line 126 of their federal return.

 

How To Calculate Your Expenses

The benefit of claiming this income is that unlike T4 income you can claim your expenses to offset the total net income.

The Full Property Is rented

When calculating your expenses you need to make sure that you calculate the correct percentage. You can only claim operating costs for the time your property was generating revenue.

For example: If you rent out your entire place for 165 days of the year (45% of the year) and make a total of $11,000 and over the course of the year the claimable expenses you incur on the property (eg. property taxes, strata fees, insurance) are $15,000, you can only claim 45% of this amount (ie: 165 days worth of expenses) so – $6781. Making your net income $4219. Expenses that relate directly to the rental such as replacing sheets and cleaning fees that you incur over those 165 days are 100% deductible.

Renting Out A Room

If you only rent out a room in your house then things become a little more complex. You need to go a few steps further and separate out the expenses that directly relate to the room you are renting (linen, decorating etc.) and divide them by the percentage of use (as demonstrated above) in addition to calculating your rental operating expenses for the house dividing them by the percentage of the year the room was rented AND then again by the  percentage of the house used to generate income.

For Example: If you rent out a room in your home (¼ of your house) for 200 days of the year and make $10,000,  the claimable expenses for the entire home $12,000 annually and the expenses relating directly to the room were $1500 annually.

You can only claim the following – The operating costs throughout the time you made the income (200 days of costs)  will be $6575 for the entire home. This then needs to be divided by 4 as only ¼ of the home was rented out so $1644 can be claimed.

In addition, you can claim $822 worth of expenses for the $1500 of furniture you purchased that was used for rental purposes 200 days.

What Expenses Can You Claim

The following is a list of expenses that are deductible:

Each can be explored in more detail by visiting the link.

If you are unsure of what you should and shouldn’t claim we recommend filing your return with a tax professional. What may feel like a saving by not paying for advice now could cost you later if you are audited and forced to pay penalties and interest on overdue funds.

Why Your Need To Know Your Numbers When Developing Your Marketing Plan

When measuring the success of a marketing plan a lot of business owners make the mistake of only focusing on website views, social media likes, and new leads. Don’t get us wrong, these key performance indicators (KPI’s) should be measured and reviewed regularly BUT to ensure that you are heading in a truly profitable direction you need to take your marketing and sales planning a step further. Talk to your bookkeeper or accountant to figure out how to accurately measure the following data so that you can use it to drive your marketing strategy.

1) Measure The Net Revenue Of Target Audience

Knowing the net revenue of each client will help you accurately determine who your most profitable clients are, which clients (if any) are costing your business money, and who you should be targeting with your marketing and sales efforts. It’s easy to make assumptions when it comes to client profitability and use these assumptions to drive your sales and marketing efforts.

For example: Henry owns a construction company with 3 key target audiences – New developments, luxury home renovations, luxury home builds. He made the assumption that new developments are his ideal target audience as they are long-term contracts, their invoices run into the millions and they allow him to build and maintain a large team. Reviewing his true net revenue by target audience revealed that after labour costs, overtime, materials, project management costs, accounting, office management, legal fees and delays that this target audience wasn’t as profitable as he originally thought and that his renovation clients were actually more profitable on average.  

While there may be times when your assumptions are correct we always suggest trusting your numbers rather than your gut when making strategic marketing decisions.

2) Know Your Client Acquisition Costs  

How do you find your clients? What is your cost of advertising to each target audience? How many hours a week do you spend on marketing and sales? How long is your sales cycle? How much time does each marketing activity take? These are all questions you need to know the answers to so you can determine which clients are worth pursuing and which marketing efforts are the best ones for obtaining them.

For example:  Sally owns a yoga studio and to attract her ideal client she advertises on Instagram & Facebook, writes one blog a week and spends 2 hours a week networking. On average Sally brings in 6 new clients a week who purchase the introductory class offer which is $40 for the month. Out of the 26 new clients per month, only 5 continue on as annual members after the intro offer expires.

When Sally breaks down her time and costs and income it looks like this:

Social Media Advertising – $600 per month – Brings in 15 clients per month = $40 per lead

Writing a weekly blog – 10 hours per month x Sally’s rate of $60 per hour = $600 – Brings in 3 clients a month = $200 per lead

2 Hours of Networking – 8 hours per month x Sally’s rate of $60 per hour = $480 – brings in 8 clients a month = $80 per lead

Total marketing = $1680 per month

Total income from the months marketing efforts = $1040 for month one, $600 for month two

So for each month of marketing, it takes 2 months for the efforts to break even and the average cost per new lead acquisition is $65.

Sally dives deeper and realizes that the clients who are most likely to continue after the introductory offer are women in their 40’s who have back issues that she targets through her Facebook advertising and people she has built a personal connection with through networking.

Looking at the numbers Sally determines that writing her blog isn’t worth her time and puts that money into social media advertising. She spends more money targeting the demographic that is most likely to continue on an annual membership and as a result, triples her monthly leads. Her cost per lead is reduced significantly, her revenue has increased and she has saved herself 10 hours a month of writing tasks.

Without diving deeply into your marketing efforts and measuring the ROI of each effort you won’t be able to streamline and improve your marketing strategy and long term revenue.

 

3) Know Your Customer Lifetime Value (CLV)

It’s widely known thanks to Pareto principle that 20% of your customers generate 80% of your revenue. This is why knowing your CLV is so important. This metric is an easy calculation and essential number to know when reviewing your retention strategy and determining your future target audiences.

To calculate the lifetime value of a client simply add up the gross profit they have brought to your business over the course of their time as a client. In addition, it’s beneficial to note the length of time they have worked with/ purchased from you and if known how they found your business.

You can use this information to create target audience personas that are based on your most profitable clients for marketing purposes, to help with the creation of client appreciation campaigns, account development, and retention plans and to predict your future revenue.

For Example:

Jennifer owns an e-commerce business and spends a lot of money marketing her products on social media to attract new clients. Once Jennifer started measuring her CVL as a key metric she was able to determine which campaigns were the most profitable long-term, cut the campaigns that were only bringing in one-off clients and build stronger nurturing and retention campaigns to keep customers who were loyal to her store coming back, increasing her overall revenue.

In this new era of online marketing what was once thought of as a creative, whimsical industry filled with fun swag and events has turned into a data-driven almost scientific one that relies heavily on the bookkeeping and accounting industry.

To ensure that your small business continues to grow successfully you need to make sure you talk to your bookkeeper or accountant to solidify that your growth strategy makes sense and that your marketing spend is bringing you the right ROI.