The intersection between e-commerce sites and sales tax has long been a sticky issue. Traditionally, many e-commerce sites simply didn’t bother assessing sales tax, and to date, Airbnb has been one of those sites. A 2018 deal between the vacation rental site and the government of British Columbia promises to change that pattern, and if you have clients who report income from this site, you need to understand what’s happening.
Provincial Sales Tax and Airbnb
This agreement represents the first time Airbnb has agreed to pay PST. In Quebec, the site pays tax, but it’s not strictly Quebec sales tax. Rather, it’s a special 3.5% Airbnb tax. In contrast, in British Columbia, the site is going to assess 8% PST plus up to 3% for local and municipal sales taxes. Normally, in British Columbia, the PST is only 7%, but for accommodations, the rate is slightly higher at 8%.
The Purpose of the Tax
According to the provincial government, this tax is designed to create a more equal playing field between hoteliers and owners of short-term rentals. Prior to the agreement, travelers who stayed in hotels had to pay the 8% PST on their room rates, while tourists who choose accommodations from Airbnb were saved that expense.
Additionally, the tax is designed to improve affordable housing and boost the tourism market. The province expects to collect about $16 million per year from the 8% tax, and all of that is earmarked for affordable housing. All funds generated from the 3% local sales tax go toward tourism.
What Your Clients Need to Know
If you represent one of the 18,000 B.C. residents who rent out properties on Airbnb, you may want to prepare for their questions or concerns. Luckily, you can assure your clients they don’t have to worry about much. The tax is being assessed and collected by Airbnb.
That said, your clients may want to think about the potential implications the new tax has for their guests. To explain, say your clients charge $300 a night for a rental in Vancouver. If the site charges 11% in PST and municipal tax, that increases the rate to $333. Luckily, the increase is not that much, but it may encourage some travelers to look for alternatives.
To prepare for that shift, your clients may want to lower their prices and absorb the tax, or they may want to try another site for short-term rentals. But if they take that route, they should be aware of the differences between sites. For instance, while Airbnb lets people list rooms in a home or apartment, VRBO only lets them list standalone rentals such as whole houses or condos. Even more importantly, these sites are likely to start assessing sales tax as well; the province is working on similar agreements.
Additional Rules and Considerations
The new sales tax on these rentals is just one of several regulations your clients should understand. They also have to report their income to the Canada Revenue Agency, and they should know relevant local rules. As part of this agreement, the province has maintained that cities can still regulate short-term rentals in other ways.
Renting out property on Airbnb can be a fun way to make a bit of extra cash. But if your clients do this, you may want to help them understand their financial obligations and how these rentals are taxed.