Reporting US Airbnb Income on Your Canadian Return: T776 or T2125, Canadian Dollars, the T1135, and the Credit for the US Tax You Actually Owed

The Canadian return does not care that the property is in Florida or that the platform withheld 30%. It asks for the gross rent and the expenses in Canadian dollars, taxes the net at the owner's marginal rate, and gives a credit for the US tax actually payable on the same income. The questions a Canadian host has to answer: rental income or business income; which exchange rate; which expenses; how much foreign tax credit; and whether the T1135 applies. The answers are the same for Airbnb as for a long-term rental, with two exceptions: the business-income question, and the credit, which is limited to the US tax on the 1040-NR rather than the 30% the platform withheld.

Key takeaways

• T776 (rental) or T2125 (business): a property rented with basic services (cleaning between guests, linens, utilities) is rental income on Form T776; one with substantial services (meals, daily cleaning, concierge, transportation) is a business on Form T2125. Most Airbnb condos are T776. The distinction affects CPP (business income is pensionable) and the character of losses.
• Currency: gross rent and expenses converted at the Bank of Canada rate on the transaction date, or the annual average rate for amounts received throughout the year. Platform statements in US dollars are converted; keep the rate used consistent.
• Expenses: platform fees, cleaning, supplies, utilities, insurance, condo fees, property tax, mortgage interest, repairs, property management, travel to the property (subject to the reasonableness and the personal-use allocation), and optional capital cost allowance. Personal-use days reduce the deductible share.
• Foreign tax credit: Form T2209 (federal) and T2036 (provincial) for the US federal and state tax actually payable on the net rental income (the 1040-NR result under the 871(d) election), not the 30% withheld. Withholding above the actual tax is recoverable from the IRS, not creditable in Canada.
• T1135: the property is specified foreign property; if the owner's total foreign property exceeds $100,000 CAD at cost, the T1135 is filed annually with the property's cost, income, and gain or loss on sale. Personal-use property is excluded, but a rental is not.

T776 or T2125

Canada distinguishes income from property (rent) from income from business by the level of services. A furnished condo rented by the night through a platform, with cleaning between stays and utilities included, is income from property: Form T776. The CRA's position is that basic services customary in a rental do not make it a business. Where the host provides meals, daily housekeeping, guest transportation, or concierge services, the activity is a business: Form T2125, with the income pensionable for CPP (both halves), and with the possibility of GST/HST registration if the business supplies taxable services in Canada (a US-only rental does not). Most Airbnb hosts file T776.

The 2024 Canadian rule denying deductions for non-compliant short-term rentals applies to Canadian properties in jurisdictions that prohibit or license short-term rentals; it does not apply to a US property.

The numbers

Gross rent. The platform's gross booking amounts (before its host fee), in US dollars, converted at the transaction-date rate or the annual average. The platform's fee is an expense, not a reduction of gross.

Expenses. All reasonable expenses of earning the rent: platform fees; cleaning and turnover; supplies and consumables; utilities and internet; insurance; condo or HOA fees; property tax; mortgage interest (on the portion of the loan used to buy the property); repairs and maintenance; property management; advertising; accounting; and travel to the property for management purposes (not vacation). Where the owner uses the property personally, expenses are allocated between rental and personal use by days, and the personal share is not deductible.

Capital cost allowance. Optional, at 4% declining balance on the building (class 1) and 20% on furniture (class 8). Claiming CCA reduces the Canadian tax now and is recaptured on sale. Many owners skip it because the US depreciation already produces a low US tax and the Canadian credit is the constraint.

Net. Taxed at marginal rates as rental income (or business income).

The foreign tax credit

The credit is for foreign non-business income tax paid on the same income: the US federal tax on the net rental income as computed on the 1040-NR under the section 871(d) election, plus any state income tax. It is not the 30% the platform withheld; that is a deposit, and the excess above the actual US tax is recoverable only from the IRS. The credit is limited to the Canadian tax on the US-source income (net of Canadian deductions), so a Canadian expense profile that differs from the US one (no depreciation in Canada, depreciation in the US) can leave the credit less than the US tax; the excess is deductible under section 20(12).

A host who never filed a 1040-NR and let the platform's 30% stand cannot claim 30% in Canada; the creditable amount is the US tax that would have been payable had the return been filed, which the CRA will ask to see.

The T1135

A Canadian resident whose specified foreign property (which includes foreign rental real estate, foreign bank and brokerage accounts, and foreign stocks) cost more than $100,000 CAD in total at any time in the year files Form T1135 by the T1 due date. The rental property is reported at cost, with the gross income for the year and the gain or loss on any disposition. Personal-use property is excluded, so a condo used only by the owner is not reported, but one rented for any part of the year is. The penalty for a missed T1135 is $25 a day up to $2,500.

Worked example

A Toronto host rents a Miami condo on Airbnb for 200 nights, uses it 40, with gross bookings of $60,000 USD, platform fees of $2,000, cleaning of $6,000, other expenses of $22,000 (condo fees, utilities, insurance, property tax, mortgage interest), and US depreciation of $18,000.

• US. 1040-NR with 871(d); rental days 200 of 240 use days; 83% of expenses allocable; net after depreciation about $5,000; US tax about $500; W-8ECI on file so no withholding.
• Canada, T776. Gross $82,000 CAD (at 1.37); expenses $41,000 CAD less the 17% personal share: about $34,000 deductible; no CCA; net about $48,000 CAD at her marginal rate: about $22,000 of tax; foreign tax credit for the $500 USD of US tax.
• T1135. Filed; the condo's cost and the year's income reported.
• Note. The Canadian tax is far higher than the US tax because Canada has no depreciation deduction being claimed and taxes at higher rates; the credit is small. Claiming CCA in Canada would reduce the Canadian tax now and be recaptured on sale.

Official sources

"This guide will help you determine your gross rental income, the expenses you can deduct and your net rental income or loss for the year. It will also help you fill in Form T776, Statement of Real Estate Rentals." — Canada Revenue Agency, Rental income, https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4036/rental-income.html

"You may be able to claim the foreign tax credit if you paid foreign income or profit taxes on income you earned outside Canada and reported on your Canadian tax return." "Complete Form T2209, Federal Foreign Tax Credits, to calculate your federal foreign tax credits." — Canada Revenue Agency, Federal foreign tax credit, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40500-federal-foreign-tax-credit.html

"Canadian resident individuals, corporations, and certain trusts that, at any time during the year, own specified foreign property costing more than $100,000" must file Form T1135. — Canada Revenue Agency, Foreign Income Verification Statement, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/foreign-income-verification-statement.html

Practitioner note

The Canadian side of a US Airbnb is where the real tax is, because Canada's rates are higher and the US depreciation does not travel. Hosts who assume the 30% withholding 'covered it' are surprised twice: the credit is limited to the actual US tax, and the T1135 was due. We reconcile the platform statement into Canadian dollars, allocate the personal days, and file the T1135 every year the property is rented.

See also: For the full sequence of a Canadian move to Florida, see the Canada-to-Florida tax guide, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the Canadian return reporting the US rental in Canadian dollars, the foreign tax credit limited to the actual US tax, and the annual T1135. See cross-border pricing or book a call.