Per our previous blog, the Government of Canada’s Fall Economic Update has announced new rules which will change the GST/HST registration and collection regime for short-term rental accommodation platforms (like AirBnb) and the underlying persons offering the accommodations to ensure GST/HST is properly collected on these supplies. This article gives a high-level overview of the proposed changes—which will be especially important to anyone who rents out their property on these platforms!
The Current Regime
Under the current rules, the government has identified an issue where property owners supplying short-term rental accommodations, which have become increasingly popular as a source of income, are not appropriately collecting and remitting GST/HST on their taxable supplies.
The prevalence of digital platforms (like AirBnb) to facilitate these rentals has “posed a number of challenges for GST/HST compliance” and “raises questions of fairness between different suppliers of short-term accommodation” – namely, between truly “small-scale” suppliers who would not be required to register for GST/HST and property owners who operate a “large-scale” business who may not be aware of their requirement to register for and collect GST/HST.
The Proposed Changes
The proposed legislation would change this by making all supplies of short-term rental accommodations subject to GST/HST where they are facilitated through an accommodation platform. The tax would be collected/remitted by either the property owner, where they are registered for GST/HST, or by the accommodation platform (e.g., AirBnb), where the property owner is not registered for GST/HST. In the latter situation, the accommodation platform would be entitled to certain input tax credits (“ITCs”) as if it had originally supplied the accommodation. This would eliminate the guesswork by small-scale suppliers with respect to their GST registration obligations. These rules have several components:
First, the rules apply to “accommodation platform operators” and generally require them to be registered for GST/HST if their “threshold amount” for any period of 12 months (other than a period that begins before July 2021) exceeds $30,000.
“Accommodation platform operator” means a person who (in respect of a short-term accommodation) operates an “accommodation platform” which controls or sets the essential elements of the transaction or, if those elements are not present, collects/charges/receives the consideration for the supply and transmits all or part of it to the underlying supplier (of the accommodation). “Accommodation platform” is merely a digital platform which facilitates supplies of short-term accommodations in Canada by persons who are not registered under the traditional GST registration rules (see Subdivision D to Division V to the ETA). For GST/HST purposes, “short-term accommodation” generally refers to accommodation for a period of less than one month.
The concept of “threshold amount” (see s. 211.12(1)) incorporates the small supplier exemption found under s. 148 of the ETA. This part provides that the threshold amount for an “accommodation platform operator” is the total value of all taxable supplies of short-term accommodations in Canada made by any person that is not registered for the GST to another non-registrant. The practical effect of this is that any “accommodation platform operator” with even a small non-registrant userbase will likely be required to register under the ETA (given the low threshold of $30,000).
The rules also provide that the “accommodation platform operator” may claim ITCs on their deemed supplies.
Conclusions
The takeaway point is that the incoming rules are complicated, and this is a prime opportunity for anyone who offers property for short-term accommodation to seek expert tax advice on the impact of the rules on their business before they are implemented in July 2021.
Do you require assistance in this area? If so, contact us here.