Airbnb Rentals Tax Collection Spreads in Canada

Airbnb has set tax collection agreements with British Columbia, Quebec, and four communities in Ontario, and it is challenging other rental platforms to do the same.

While the agreements bring Airbnb in compliance with local tax requirements, the step more broadly shows the pressure digital platforms are under to properly collect and remit taxes in the areas where they operate. Airbnb is so far the main short-term rental platform in Canada to make such agreements, which are a tool for the company to stave off concerns from municipalities that fear an underground digital economy.

Canada’s federal government, despite requests from Airbnb, hasn’t shown any interest in a nationwide regulation of short-term accommodating platforms.

“We look forward to continuing our work with these cities and provinces, as well as others across the country, and encourage other short-term rental platforms to stand up and do the same,” Lindsey Scully, an Airbnb Inc. spokeswoman, said Sept. 18.

Airbnb on Sept. 17 finalized tax collection agreements with the province of British Columbia and the Ontario communities of Mississauga, Brockville, and Greater Sudbury, according to news releases. The company’s tax collection agreement with Ottawa began Aug. 1, and a province-wide agreement with Quebec began Oct. 1, 2017. The Quebec agreement generated C$2.8 million ($2.2 million) in new tax revenues for the provincial government within the first six months, Scully said.

Patchwork of Agreements

Under the Quebec agreement, individuals renting for fewer than 31 nights must pay a 3.5 percent tourism accommodation tax.

Starting on Oct. 1, individuals staying in rentals in British Columbia will pay a provincial sales tax of 8 percent of the listing price and a municipal regional district tax of up to 3 percent for reservations shorter than 26 nights, according to Airbnb.

Individuals staying in the Ontario communities will pay a municipal accommodation tax of 4 percent of the price of the listing price for reservations under 30 nights, according to Airbnb.

Mississauga will use the tax revenues to “showcase our great city to the world, without asking Mississauga taxpayers to pay anything more,” Mayor Bonnie Crombie said a Sept. 17 statement.

Canada’s hotel industry sees the tax agreements as a “critical step,” but hotel owners want a more unified approach that includes fair taxation, licensing, registration, a cap on usage, and a restriction limiting short-term rentals to principal residences, Alana Baker, director of government relations with the Hotel Association of Canada, said Sept. 18.

“These are not casual operators. They are businesses and should comply with the same responsibilities as hotel businesses,” she told Bloomberg Tax.

The association in July released a proposal to regulate short-term rentals, calling on local governments to register hosts, block “ghost hotels,” and apply health and safety standards.

Good Business

There is no basis in law for Airbnb to collect taxes for the various governments, but volunteering to do it may be a smart business decision, Bobby Solhi, a tax partner with Borden Ladner Gervais LLP in Toronto, said Sept. 18.

Otherwise tax authorities would have to request information from Airbnb and other digital suppliers about their customers and conduct individual audits, Solhi told Bloomberg Tax.

“A harmonized approach, in theory, should be better, but it seems there are a number of different taxes in play with the Airbnb situation, each one with different legislation and compliance requirements,” Solhi told Bloomberg Tax.

The tax agreements show the practical issues facing Canadian tax authorities in dealing with legal sales by individuals that online platforms facilitate, Toronto tax lawyer Simon Thang said Sept. 18.

The suppliers are numerous and small and forcing each to register and collect tax is impractical, Thang, a principal with Thang Tax Law, told Bloomberg Tax.

“Tax authorities have to date either negotiated collection agreements with the platform or, as in Quebec, attempted to legislatively force collection by the platform,” he said.

A piecemeal approach is the only option for now as there is no single authority responsible for the slew of local and provincial taxes across Canada, he said.