GST/HST on Platform-based Short-Term Accommodation - January 2021 - Hotel Association of ...
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GST/HST on Platform-based Short-Term Accommodation COMMENTS FROM THE HOTEL ASSOCIATION OF CANADA January 2021
Summary
The Hotel Association of by strict health & safety stan-
Canada commends the federal dards, and continue to work
government for addressing a with public health authorities to
glaring inequity in the applica- provide quarantine facilities and
tion of sales tax in the digital shelter vulnerable Canadians.
accommodation sector. We
strongly support the measures It is rare in the world of tax
included in the 2020 Fall Eco- policy to accomplish three often
nomic Statement and offer competing objectives: enhance
minor suggestions for improve- the fairness and equity in the
ment. tax system; raise additional tax
revenue; and achieve unanimity
In the face of a global health among major political parties.
pandemic, a level playing field
is needed now more than ever. Canadians also support the
Short-term rentals are unregu- concept of fairness. According
lated digital accommodations to a recent poll, close to 80% of
businesses that do not pay tax, Canadians think that E-com-
do not follow regional health & merce companies should be
safety standards, do not have subject to Canadian taxes for
contact tracing protocols in business carried out in Canada.
place and contribute to a loss
of housing, community Creating a level playing field for
nuisance and higher rental the short-term rental industry
rates. This is in stark contrast to respects not only basic princi-
hotels, which are legitimate ples of sales tax policy but it will
regulated accommodations also provide incentives to invest
businesses that respect mass in an industry that typically
gathering limits, pay corporate employs over 300,000 Canadians.
income tax and sales tax, abide
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 1Key Recommendations
OUR RECOMMENDATIONS TO IMPROVE WHAT IS CONTAINED
IN THE FALL ECONOMIC STATEMENT ARE AS FOLLOWS:
1. Similar to the rules in place for taxi and ride-sharing
services, sales tax on short-term rental accommodations
should be universal and apply at dollar one. Therefore, there
should be no exemption for accommodations at less than
$20.00 per night. Eliminating exemptions reduces the
potential for loopholes and minimizes compliance costs. We
recommend the government implement a Quick Method of
Accounting for short-term accommodation providers.
2. All efforts should be made to establish a national, harmo-
nious sales tax system for the accommodation sector with
minimal provincial variations. Beyond rate differentials
between Ontario and Atlantic provinces, this includes achiev-
ing a coordinated and functional system that encompasses
all provinces.
3. To promote tax compliance, in addition to platform opera-
tors assisting the CRA by sharing information on property
owners, t this information should also be provided to hosts in
the form of an annual tax information slip.
4. The exemption to exclude websites that allows vendors to
list their properties for short-term rental needs to be carefully
monitored to ensure that it does not allow the intent of the
amendments to be circumvented by digital operators.
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 2promote compliance. The tax
Income Tax information slips that are refer-
Measures enced above would be a good
first step.
While the significant
improvements in establish- There is also an issue around the
ing equity in sales tax is deductibility of expenses for
highly commended, there accommodation providers. For
remains the issue of income example, tax advisors suggest
tax. This is concerning for that expenses for a property are
both the platform operators deductible for any period when a
and the hosts of short-term home or room is “available” for
rental accommodation. rent. In other words, if a home is
available for 6 months of the year
The current corporate but is only rented for one month,
income tax system is simply the property owner would deduct
not designed to deal with 50% of the annual interest costs.
platform companies that That would remain the case even
operate digitally and with- though the homeowner may still
out a permanent establishment in be enjoying full use of the proper-
Canada. The shift from a tax on ty. Such an interpretation is
corporate income towards a tax on beyond generous to the home-
revenue that is currently being owner and difficult to audit. An
enacted by many developed coun- income tax information tax bulle-
tries as a surrogate measure is the tin would help to provide clarity
obvious policy solution. It is simple, over the allowability of such
effective and cannot be avoided. expenses.
We recommend that Canada
adopt a similar approach.
For providers of short-term accom-
modations there exists much
confusion in how income tax
applies. While the legislation is
clear that there is no exemption
from income tax, we recommend
that an education and enforce-
ment campaign be initiated to
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 3The Reason Action
is Needed Now $2.8 billion
in revenue generated
by short-term rentals
According to Statistics Canada, in Canada in 2018
short-term rental providers oper-
ating in Canada generated an
estimated $2.8 billion in revenue
in 2018. Companies like Airbnb US$100 billion
have been operating offshore and Airbnb is valued in
have cleverly avoided corporate excess of
income tax and charging sales tax
since their inception. This con-
trasts with Canadian hotels, with
over 300,000 employees in 25%
Canada, who operate at a com- of Airbnb hosts are
petitive disadvantage because multi-unit hosts
they charge and remit sales tax
and are assessed and pay corpo-
rate income tax. 83%
of Airbnb’s revenue in
While Airbnb began as a simple
Canada is generated by
home-sharing concept with a
entire-home rentals
website to rent three airbeds on a
living-room floor for participants
attending a San Francisco design
conference, it now operates in 191
1 in 3
countries and has a company hosts rent their properties
value in excess of US$100 billion. for more than
90 days / year
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 4Commercial While there is little impact on a
Operators community’s housing stock when
someone casually rents a room in
their home, the outcome is differ-
It is not just the ent when investors and entrepre-
digital platform
giants that have neurs remove units from a leasing
grown. It did not portfolio; or buy homes or condo-
take long for savvy miniums for the purposes of
domestic operators “home-sharing;” or worse, when
to go well beyond they evict long term tenants
renting out rooms because more money can be
for occasional use. made on the short-term rental
The trend has been to take entire market. The bottom line is that
homes and residential units off the fewer properties are available for
long-term rental market and long-term accommodation.
convert them into hotel-like opera-
tions. The data shows that short-term
rentals have morphed from
Today, multi-unit hosts represent home-sharing into largely com-
approximately 25 per cent of the mercial operations. During 2016,
short-term rental market as multi-unit, entire-home rentals
aggressive entrepreneurs figured were the fastest growing Airbnb
out a way to operate ghost hotels segment in terms of number of
without having to invest in real hosts, units and revenue generat-
estate or having to follow estab- ed. Entire-home rentals comprised
lished health and safety regula- 83% of total Airbnb revenues in
tions. These commercial operators Canada. Further, one out of every 3
also avoid many of the normal Airbnb hosts rented out their
costs of doing business, including properties for more than 90 days
paying taxes and other levies. per year. This pool of rental units
generated 71 per cent of Airbnb’s
True home-sharing has become total Canadian revenue. Almost
increasingly rare. Today, the 50% of all Airbnb revenue last year
short-term rental industry has was generated by commercial
infiltrated communities creating a operators who manage multiple
host of problems for governments, listings.
communities and homeowners to
address.
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 5Health and
Safety
The short-term rental
platforms take no direct
responsibility for the health
and safety of their clients.
Most municipalities do not
require home inspections
and there is no assurance
with respect to fire, safety or
health standards. In con-
trast, regulated properties
such as hotels must adhere
to fire, health, and safety
standards and submit to
regular inspections. And this
is nothing to say of compli-
ance with accessibility
standards in Canada.
Community
Impacts
When residen- Short-term renters do not
always respect the
tial homes are
home-owners’ property.
converted into
Stories regularly surface in
transient com-
the media that illustrate the
mercial opera-
risks involved when opening
tions, the charac-
your home to total strang-
ter of neighbor-
ers. Homes have been
hoods is
turned into locations for
changed in ways that were never contem-
massive raves, parties caus-
plated. Such a drastic rise in commercial
ing thousands of dollars in
activity in residential areas has created
damages, and even sex
nuisance and hazards like excessive noise,
trafficking.
insufficient parking, vandalism and criminal
activity.
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 6Conclusion
To date, this array of unintended Governments around the world
consequences has flourished in have begun to address issues of fair
part because our nation’s tax taxation for digital giants, including
policies have effectively encour- companies such as Airbnb and The
aged the growth of ghost hotels Expedia Group, with its many
that have given them a competi- subsidiaries. The issue has been
tive advantage. raised at the G7 and the OECD, but
the establishment of a world-wide
By contrast, the licensed Canadian consensus has been slow to devel-
hotel industry complies with sales op. In the meantime, some coun-
and income tax laws and their tries including France and Great
employees are covered under a full Britain, have moved forward with
array of income and other supports direct taxation on digital giants.
such as the Canada Pension Plan, Similarly, two Canadian provincial
Employment Insurance, and Work- governments and various munici-
ers’ Compensation. Any mandatory pal governments have begun to
tourism or destination fees are also collect revenues and fees from the
contributed to support regional short-term rental industry.
marketing campaigns. These fees
are used to attract visitors, many of Thankfully, as announced in the
whom end up using short-term 2020 Fall Economic Statement, the
rental platforms. Government of Canada has chosen
to address some of the tax inequi-
The hotel and accommodation ties to end the discrimination
industry pays business and proper- against Canadian hotel operations.
ty taxes at the commercial rate. The proposed changes also support
According to the 2017 Altus Group other important tax principles such
Canadian Property Tax Rate Bench- as tax harmony (across the federal
mark Report, commercial opera- and provincial government) as well
tors pay on average almost three as simplicity, transparency and the
times the level of property tax that lowering of compliance costs. The
is imposed on a residential ratepay- changes will not only address
er. This gives a powerful incentive forgone tax revenues but promote
for short-term rental operators to economic growth and investment
stay in the underground economy. in the hotel industry.
GST/HST ON PLATFORM-BASED SHORT-TERM ACCOMMODATION | 7You can also read
