Hotels pay taxes.
So do you.
Why does Airbnb
get a free ride?
Short-term rental operations provided by digital platforms like Airbnb continue to grow, while our laws and regulations remain outdated. Commercial operators – those renting multiple units or entire homes on digital platforms – are acting like hotels without the same responsibilities to taxation, health and safety standards, business licenses, and insurance. These digital platforms currently exploit a pre-digital loophole in tax policy, in which they are exempt as they do not have any stores or offices here. All businesses operating in Canada, regardless if they have a physical presence or not, should be given the benefit of a level playing field.
While Airbnb was meant to be a home sharing platform for everyday people to share rooms within their homes, it is now a multibillion-dollar corporation that has no responsibilities to federal taxation and other regulatory realities. While hotels pay taxes to reinvest in and strengthen our communities, digital platforms like Airbnb reap the benefits of our communities without paying their fair share.
In May 2019, the Auditor General of Canada recommended the Canada Revenue Agency expand its compliance activities and leverage available third-party data to enhance its ability to direct and deter non-compliance for the GST/HST in e-commerce, including accommodation sharing.
Canadians agree that it’s only fair that foreign e-commerce companies that conduct business here have the same tax obligations as Canadian companies. An Environics Research poll and separate study of Canada Revenue Agency (CRA) tax professionals revealed that almost 8-in-10 Canadians (77%) and almost 9-in-10 (87%) CRA tax professionals are in agreement that foreign e-commerce companies should be subject to Canadian taxes for business carried out in Canada. With the Federal Election upon us, it is time political candidates and parties commit to modernizing Canada’s tax laws.
What is a Shadow Hotel?
a) An illegal short-term rental, listed on sites such as Airbnb, in breach of local laws designed to limit hotel-style stays in residential buildings.
b) A residential property operating like a lodging business that evades regulatory oversight, including fire, health and safety inspections, while avoiding taxes and other costs of doing business by using platforms originally intended to facilitate home sharing.
Examples: an Airbnb unit that is rented out for more than 90 days per year; an Airbnb host that rents out multiple entire-home units on a regular basis.
With these discrepancies in policies, not only are Governments and cities losing out on tax revenues, Canadians are losing out. According to a recent Statistics Canada report, revenue for the private short-term accommodation market in Canada is estimated at $2.8 billion in 2018. From 2015 to 2017, multi-unit entire-home hosts were the fastest growing Airbnb segment compared to all other Airbnb host types, with revenues from this segment more than doubling from $71 million to $167 million – a 134% increase.
In Toronto alone, Airbnb is generating well over $250 million. In 2019, it is estimated that $190 million of Airbnb’s Toronto revenues come from ghost hotels – commercially operated full-time Airbnb units. These ghost hotels are draining the housing supply, while hosts and Airbnb pay no taxes to the city or to the Canadian Government.
Many jurisdictions around the world have modernized their tax laws to level the playing field, including the EU, UK, France, Australia, Japan, and multiple U.S. cities and states. Similarly, several municipalities and provinces in Canada have taken action. When the Quebec Government announced it would begin taxing these internet giants, they estimated revenues of over $100 million over five years. A recent report out of British Columbia states that within the first six months since the province struck a deal with Airbnb to collect and remit provincial sales tax, $14 million has been raised, nearly double what was originally estimated.
A 2017 CBRE Study revealed that Canada’s Airbnb sector has the potential to contribute nearly $100 million annually in consumer taxes and fees to the Canadian economy. Furthermore, the Auditor General of Canada estimated losses of $169 million in the GST on foreign digital products and services sold in Canada in 2017.
Unregulated short-term rentals raise many safety concerns. While hotels have high regulatory, health and safety standards they must maintain from health codes to fire safety, short-term rentals may not have the same obligations. Simply put: the lack of standards puts guests at risk.
Canadians feel unsafe with strangers frequently going in and out of their apartment buildings and neighbours’ homes. A recent Nanos Research study found that more than 60% of Canadians are concerned or somewhat concerned about a neighbouring home being regularly rented out through an online short-term rental platform like Airbnb. The same study found that only 1% of Canadians believe that Airbnb has a positive impact on their neighbourhood quality of life. Half of Canadians said they would personally feel less safe if short-term rentals were located in their neighbourhood.
WHAT CANADIANS SAY
IMPACTS ON AVAILABLE & AFFORDABLE HOUSING
Short-term rental operations have had a profound impact on affordable housing – an issue that has already reached a critical state in many jurisdictions across Canada. Governments are losing out on housing units and receive no revenue from short-term rentals.
Recent Fairbnb reports on the Housing Crisis’ in Toronto and Ottawa found that short-term rentals continue to have a negative effect on housing availability and affordability in each city. Toronto has one of the lowest vacancy rates in Canada at 1.1%. Returning even a small portion of these homes to the housing market would make a significant difference to the thousands of families seeking permanent housing. In 2017, Toronto city staff estimated that Airbnb alone drained 3,200 entire homes from Toronto’s housing supply in 2016. By 2019, this number has more than doubled to approximately 6,500 entire homes. Toronto is just one case study. Similar effects of short-term rentals on housing supply can be seen in other major cities across Canada.
In June of this year, a groundbreaking study released from McGill University suggests that approximately 31,000 homes across Canada were likely taken off the long-term rental market due to Airbnb alone.