I am wondering about the legalities and tax consequences of the following scenario:
You are in Canada under a student visa (or you are simply there under the allotted 180 days you're allowed to be there as a US citizen, and then get on the student visa), you are studying in Canada, you are staying in a place that has multiple bedrooms, but you have no roommates.
You decide to rent out the spare bedrooms to other people, and from this you are earning income in Canada.
Is this even legal? I understand that in most cases you must have a business visa to "work" in Canada. But is this really considered work? Or where exactly does income from property fall under? It is somewhat of my understanding that it doesn't REALLY matter so long as the taxes are paid, but again this is why I am posting here to receive some more experienced input.
So in conclusion the main questions are:
1. What is the legality of this situation if you are NOT on a business visa? Would there actually be any consequences since it isn't like you are working for an employer, plus you would be paying the necessary taxes on said income?
2. Of course taxes will be paid, would taxes need to be paid in Canada first, and then in the USA, but would you be able to deduct the taxes you paid in Canada?
I will take a stab at this, and let the more knowledgeable posters correct me.
If you were in the business of renting housing, it would be business income, and you would be taxed on your net income after expenses. But in order to have "business income" there has to be some reasonable expectation of profit.
In the situation you describe, and assuming the aggregate of rent(s) you are charging to roomers is less than your own rental cost for the house/apartment, you have no positive net income. Consequently I don't think you have any taxable income, and therefore no need to report to CRA. Your roomers are simply helping you to share your living costs. But it is a bit of a grey area, and perhaps some people more experienced in renting to roomers can comment.
Last edited by OhGreatGuru; 2012-09-27 at 08:14 PM.
Thank you both for your replies, I find them very insightful.
But the situation is different from your assumptions. You are actually not breaking even from the extra roommates in the house, but you are in fact making a profit from the situation, as in you receive more money from them than it costs you to rent the place. In that situation, you would have a profit, so in that case what should be done?