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Opinion

Why do digital businesses get a free ride?

By Alana Baker      

With this increase in transient accommodation in our residential neighbourhoods comes community disruptions and safety concerns.

Canada is in a housing crisis, and the unregulated commercial activity on these digital platforms is exacerbating the problem, writes Alana Baker of the Hotel Association of Canada. Photo by Luke van Zyl on Unsplash
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Summer is a time when most Canadians take some well-earned vacation. But for many digital platforms, their holiday from taxes and regulations never ends. 

Foreign-owned digital companies like Airbnb that don’t have a physical presence in Canada do not have the same tax obligations as the rest of us. These companies are conducting business in Canada. According to a recent Statistics Canada report, revenue for the private, short-term accommodation market in Canada is estimated at a whopping $2.8-billion in 2018. 

While accommodation-sharing platforms continue to rake in billions of dollars, unfair tax rules are not the only negative impacts felt by Canadians. Last year, nearly half of all of Airbnb’s revenue in Canada was generated by commercial operators—those who are renting out entire homes or multiple listings, according to a McGill University study. These aren’t people just renting out a spare room for some extra cash. Alarmingly, these businesses operate in residential neighbourhoods, which means fewer units available for rent and soaring prices. The study, released in June, estimated that approximately 31,000 homes were removed from Canada’s long-term rental supply in 2018 alone, likely due to Airbnb. Hosts brought in $1.8-billion in revenue in 2018, a 40 per cent growth from 2017. 

Canada is in a housing crisis, and the unregulated commercial activity on these digital platforms is exacerbating the problem. People are buying second (or more) homes just to rent on short-term accommodation platforms, because they know they can earn more money per night than renting to someone long term. With this increase in transient accommodation in our residential neighbourhoods comes community disruptions and safety concerns.

In May, the auditor general’s 2019 spring report on the taxation of e-commerce found that the Canadian sales tax system is not keeping pace with the rapidly evolving digital marketplace. The AG estimated losses of $169-million in sales tax revenues on foreign digital products and services in 2017. 

Why are we waiting to take action? Canada continues to lag behind while other G20 countries, including Japan, which have updated their tax laws. With the lack of federal action, even some of our provinces have taken steps, including British Columbia and Quebec, which have realized that we can’t let these digital platforms get by without any obligations to the jurisdiction they’re operating in.

This is one area where everyday Canadians agree. A recent survey from the Professional Institute of Public Service Canada, a public service union, suggested that almost eight out of 10 Canadians think that e-commerce companies should be subject to Canadian taxes for business carried out in Canada. Safe to say when it comes to tax fairness and contributing to the Canadian economy, the support from Canadians is ever present.

The time for federal leadership is now. With the upcoming election, Canada has an opportunity to take concrete steps to address these unintended consequences, promote fairness, and protect communities. Federal parties and candidates should commit to bringing Canada’s tax laws into the 21st century to benefit the Canadian economy. It’s a no-brainer. It’s time to put Canadians first. 

Alana Baker is the director of government relations at the Hotel Association of Canada.

Editor’s note: In the past, one of the study’s co-authors, David Wachsmuth, has done consulting work and produced reports for the government, civic and business groups, including a hotel-industry association, according to a Globe and Mail report. Prof. Wachsmuth has not worked as a consultant with the Canadian hotel lobby. This study was funded by the federal government.

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