Federal government clamps down on Airbnb, VRBO hosts with new tax measure

Effective Jan. 1, property owners in areas that prohibit short-term rentals or who are non-compliant with local laws will no longer be able to claim expenses against rental income.

Thestar.com
Nov. 22, 2023
Ana Pereira

The Liberal government is unveiling a new tax measure that removes incentives for people leasing short-term properties, making it less lucrative to list homes or apartments on platforms like Airbnb and VRBO, according to the Fall Economic Statement delivered by Finance Minister Chrystia Freeland on Tuesday.

The measure, which will come into effect on Jan. 1, 2024, will no longer allow hosts to claim expenses against the income they make from their rentals. It will only apply to property owners in areas that prohibit short-term rentals or who are non-compliant with local laws.

The government also announced that it will be spending $50 million over three years to support municipal enforcement of restrictions.

This, the government says, will help decelerate the recent growth of short-term rentals in the country, which diverted long-term rentals onto the short-term market, resulting in less homes available for people to live in and making housing less affordable.

“We will be cracking down on short term rentals listed on sites like Airbnb and VRBO,” said Freeland “which are keeping far too many homes off the market in communities and cities right across the country. That’s going to make a real difference.”

But the new policy might only have a marginal impact on affordability as long as strong immigration continues to surpass the rate of construction of homes in Canada.

“We are skeptical that a policy designed to prevent something that is already restricted will have any meaningful effect on affordability,” said Stephen Brown, deputy chief economist at Capital Economics.

“The vilification of short-term rentals does not seem particularly beneficial in an economy that relies on millions of temporary workers to address labour shortages,” he added. “In Toronto, thousands of immigrants rely on short-term rentals when they first arrive. Limiting the supply of those short-term rentals simply pushes more people straight into long-term rentals, meaning that any improvement in the supply of long-term rentals is immediately offset by higher demand.”

One economist, however, believes that, in the context of a housing crisis, every unit available for long-term rentals counts: “At the end of the day, I think governments at all levels should be looking at every possible avenue to get those units quickly into the long term rentals,” said Robert Hogue, chief economist at Royal Bank of Canada.

The move supports similar decisions by provincial and municipal governments to crack down on short-term rentals and increase the housing supply.

In 2021, the City of Toronto established that landlords must get a license and can only rent out their principal residence for 180 days a year. Still, there are over 8,000 short-term rentals registered with the city, according to an online database.

Recently, the government of British Columbia also announced it would restrict rentals to a host’s primary residence in cities with over 10,000 people, while the City of Vancouver already had such restrictions in place.

Short-term rentals are regulated in almost 90 per cent of Airbnb’s top Canadian markets, according to data supplied by the company.

“We support the federal government’s investment in building more houses for Canadians,” said Nathan Rotman, policy lead at Airbnb Canada.

However, Rotman believes home-sharing regulations are not the solution to the housing crisis.

“The reality is the majority of Airbnb hosts in Canada share one home to supplement their income and listings represent less than one per cent of the country’s housing stock. Many Canadians earn extra income through home sharing to make ends meet at a time of increasing inflation, interest rates and cost of living.”

Expedia Group, parent company of VRBO, said it “supports efforts to drive a high rate of compliance with short-term rental regulations, allowing communities to address local needs while protecting responsible rental homeowners and guests,” said Hunter Doubt, manager of government and corporate affairs for Expedia Group Canada.