Canada’s New Tax Rule Curbs Airbnb Deductions to Address Housing Shortage

Canada introduced tax measures on Tuesday to ease a severe rental housing shortage by limiting income tax deductions on short-term rentals on services such as Airbnb Inc and Vrbo, joining many countries that are enacting similar laws.

The new rules apply as of Jan. 1 in provinces and municipalities that bar short-term rentals, and affect deductions such as interest expenses, the federal government said in its fall economic statement.

In Montréal, Toronto and Vancouver alone, an estimated 18,900 homes were being used as short-term rental properties in 2020, the report added, noting that the number “has almost surely increased in recent years.”

Airbnb, however, said listings in Toronto and Montreal have dropped since 2020.

Similar legal restrictions, including in Australia and Italy, could further hurt the profits of companies such as Airbnb as they face a backlash from hotels.

“Home-sharing regulations are not the solution to Canada’s housing crisis. The reality is the majority of Airbnb Hosts in Canada share one home to supplement their income and listings represent less than 1% of the country’s housing stock,” said Nathan Rotman, Airbnb’s policy lead for Canada, by email.

“Many Canadians earn extra income through home sharing to make ends meet at a time of increasing inflation, interest rates and cost of living.”

Starting in 2024, the government will spend C$50 million ($36 million) over three years to enable municipal enforcement of restrictions on short-term rentals.

Housing supply has failed to keep up with Canada’s immigration-fueled population growth, and housing prices soared during the COVID pandemic as low mortgage rates encouraged higher offers from buyers working from home.

Canadian homebuilders cannot keep up with the demand, while U.S. cities are adopting regulations including requiring hosts to obtain licenses and pay registration fees.

Gabriel Giguère, public policy analyst at Montreal Economic Institute, criticized the government’s decision to modify the tax treatment of the expenses of owners of short-term rental apartments.

“It’s not as if we’re a handful of Airbnbs away from solving Canada’s housing shortage. Any solution that does not involve a massive increase in the housing supply is unfortunately just a distraction,” Giguère said.

Florence, Italy, has banned new short-term home rentals, while Australian tourist destination Byron Bay will limit the availability of some properties for short-term holiday stays.

British Columbia requires hosts to register with the province, and has increased fines for breaking local rules and restricted rentals to only a portion of the principal residence. The rules go into effect next year.

(Reporting by Nivedita Balu in Toronto; Editing by Richard Chang and Leslie Adler)

Copyright (2023) Thomson Reuters. Click for restrictions