Governments grapple with regulating, taxing home-sharing services
In the 10 years since Airbnb was launched, it’s become a household name and lawmakers are struggling to keep up.
Despite telling Ottawa last month that the company is on board with paying taxes, there are no federal regulations that apply to Airbnb, and most provinces are still working out the details of how to approach a possible regulatory framework for Airbnb and other companies that offer home-sharing services.
In Atlantic Canada, shortterm accommodations are technically regulated by provinces’ hospitality regulations as well as municipal rules, but no province has any regulations that deal specifically with Airbnb-style accommodations.
For example, in P.E.I., anyone renting out their property must get a licence and an inspection from the province and pay a fee, something that applies across the board to hotels and campgrounds. Other provinces, such as Nova Scotia, have a regulatory framework that applies to all traveller accommodations, but are also looking at further regulations that would apply to the home-sharing economy.
To further complicate things, governments are facing pressure to regulate from all angles — the housing and hospitality industries, and other advocacy groups that have their own opinions on how governments should handle this new frontier.
“It’s one of those areas that’s a real disruptor in any economy. It’s something that wasn’t there three or four years ago, really in any meaningful way, and now it’s on the tip of everyone’s tongue and a market presence,” said Fred Morley, chief economist at Tourism Nova Scotia.
“Every jurisdiction — any cities, provinces, states, even countries — are trying to figure out how to deal with this.”
With the exception of HST, Morley said, it will be up to the provinces and municipalities to decide how to tax and regulate Airbnb-type services.
Morley is part of a working group that will provide recommendations to the Nova Scotia government about how to regulate the industry. Their study is expected to be shared with the Business Department later this fall.
As part of that, Morley has been looking at what kind of taxation regimes exist in other parts of the world and what’s been working and what hasn’t.
As for what not to do, Morley said there are plenty of examples. He said lots of jurisdictions that wanted to regulate the industry early on tended to regulate heavily, or take decades-old taxation and regulatory systems and enforce them on this new burgeoning industry.
“Almost universally that approach has failed and all of those jurisdictions ... pivoted into new approaches now,” Morley said.
“The sector is very dynamic and there’s a huge amount of churn — the businesses that are there last year may not be there this year so it was difficult to have any meaningful enforcement in that environment.”
What does seem to work, Morley said, is regulating down and lowering the cost of regulation for everyone while still ensuring the rules are fair across the board and encouraging growth and innovation in the accommodation sector
In B.C., Morley said lawmakers seem to have found an answer that works. In February, the province announced that after extensive consultations it would require Airbnb to collect an eight per cent PST and three per cent municipal and regional district tax. This puts Airbnb in line with traditional accommodations without adding an extra regulatory burden to the industry.
Some cities and towns have crafted their own regulations to respond to concerns from residents and other industries. In Vancouver, where there is an ongoing housing crunch, Airbnb operators who wish to rent space in their primary residence must get a licence from the city, and short-term rentals are prohibited in secondary homes. Those who break the rules can be subject to a hefty fine.
But, Morley said, all economies are different, so what may work in Vancouver won’t necessarily work in Lunenburg.
One picturesque P.E.I. village, Victoria-by-the-sea, has responded to would-be buyers seeking to snatch up property to list on short-term rental sites by enacting a bylaw that only allows vacation home permits for traditional beds and breakfasts and hotels. This means anyone who wants to rent out a room on Airbnb actually has to live in the community — something that’s not difficult to enforce in a town of 100.
“The village as it is, it’s kind of the way we want it to be. And what we were afraid of was that people have a lot of money to invest would buy up houses and property,” said Ben Smith, mayor of Victoria-by-the-sea.
“We want to encourage people to come here and live here, and full-time residents are what we’re looking for.”
Larry Laite, chairman of Hospitality Newfoundland and Labrador, said there’s no question that sites like Airbnb have been beneficial to the province’s tourism industry, for example by filling a void in rural areas where accommodations are sparse, or providing extra capacity in tourism hot spots during busy seasons.
“Airbnb is here to stay and it can be a good thing. We just need them to be playing in the same box as others,” he said.
He said the current Tourist Establishment Act in the province is decades old and no longer applicable to the new digital world of home sharing, so the hospitality industry has been calling on the government to refresh the regulatory regime to apply to all accommodations.
“There are some really nice Airbnbs that are competing with (traditional accommodations) but because they’re unlicensed and not doing taxation they’ve got their competitive advantage,” Laite said.
He said in St. John’s, where there is a tourism levy tax, it’s estimated the city had lost out on of hundreds of thousands of dollars that could have been collected from short-term rental operators.
A young couple subsidizing their mortgage by renting out a room is one thing, but Laite said when people are buying properties specifically to rent through sites like Airbnb, they are essentially running a business and should be treated as such.
Laite said there’s also concern that without proper inspections for health and safety and insurance requirements, something could happen that would look bad on the industry.
Trying to keep things fair across the board, trying to ensure safety and quality, while also leaving room for the tourism industry to grow is something many municipalities and most provinces will be grappling with in the coming months and years, Morley said.
“Everyone’s looking for the Holy Grail — how do we be fair to existing operators and also encourage the new segments that are emerging,” Morley said.
“It’s going to take time for (governments) to work that out.”
“It’s one of those areas that’s a real disruptor in any economy. It’s something that wasn’t there three or four years ago, really in any meaningful way, and now it’s on the tip of everyone’s tongue and a market presence ... Every jurisdiction — any cities, provinces, states, even countries — are trying to figure out how to deal with this.”
Fred Morley, chief economist Tourism Nova Scotia.