New Tax Rules are Coming to BC’s Accommodation Industry
As tax accountants in Vancouver, the team at Facet Advisors has important news that will significantly impact businesses in the accommodations industry. In July of this year, the BC government released a Provincial Sales Tax (“PST”) Notice on key changes to the availability of certain exemptions for PST and Municipal and Regional District Tax (“MRDT”) with respect to accommodations sold in the province. Below we outline how the PST and MRDT have traditionally been applied to accommodations/rental and the key changes that will come into effect October 1, 2018.
Existing Applicability of PST & MRDT
The BC PST currently applies at a rate of 8% on taxable accommodations provided in BC, unless an exemption applies. Taxable accommodations include lodging provided in hotels, bed and breakfasts, cabins, condominiums, vacation homes or other similar properties. The accommodations must also be short-term in that they are not rented to the same person for a continuous period of more than one month.
The BC MRDT applies under the same circumstances as the PST with respect to a sale of accommodations. It is charged at a rate of either 2% or 3%, depending on the municipality. A complete list of the applicable rate for different municipalities is included in the bulletin which is available at the following link:
There are currently a number of exemptions tax accountants can apply to reduce the financial burden on businesses. These significantly reduce the number of persons required to charge PST and MRDT on accommodations. These exemptions include, but are not limited to:
- The number of units being rented out is less than four;
- The charge for the rental of a unit is $30 or less per day, or $210 or less per week;
- The unit is being rented to the same person for a continuous period of more than one month (i.e. long-term accommodation);
- The unit is located on First Nations land and is being rented to a First Nations individual or band; and
- The unit is located in an industrial camp, is rented to an employee, and other specific criteria apply.
Where none of the above exemptions is available, PST and MRDT is assessable on the sale of the accommodation.
Changes Effective October 1, 2018
Firstly, the government has stated that a person must be registered to collect PST and MRDT unless that person:
- Sells only accommodation which is exempt; or
- Their property is only listed on an online accommodation platform (AirBNB, VRBO, etc) that is registered to collect the PST and MRDT (i.e. the PST and MRDT is being charged by the online accommodation platform itself)
Secondly, effective October 1, 2018 there will be an update to what includes a taxable accommodation. The definition will be expanded to include a residential dwelling, or any part of a residential dwelling, used as lodging if the dwelling is listed on an online accommodation platform, as well as a stationary vehicle. As such, homes, cottages, apartments, townhouses, RVs and other similar properties may now be subject to PST and MRDT when listed as accommodation on an online platform. This is significant as changes may impact the preparation of corporate taxes as well as personal taxes.
The second change also includes changes to the exemptions listed above. The following changes will be effective October 1, 2018:
- The exemption for the rental of fewer than four units is being eliminated. Unless another exemption applies, providing a single accommodation for rent will now require the lessor to register to collect the PST and MRDT.
- Where an accommodation is not listed on an online platform, the gross revenues for the previous 12 months are less than $2,500, and it can be reasonably estimated that the gross revenues for the following 12 months will be less than $2,500, PST and MRDT will not apply to the sale of the accommodation.
- Low cost accommodations (where the charge is $30 or less per day, or $210 or less per week) will continue to be in place even if the accommodation is listed on an online platform.
- The exemption for a unit being rented to the same person for a continuous period of more than one month will be updated to be for a period of 27 days or more.
Where a person makes a sale of an accommodation before October 1, 2018, the existing rules will apply. If the sale occurs on or after October 1, 2018, the new rules will apply.
For example, if a person makes a sale of an accommodation prior to October 1, 2018 for a period prior to, on, or after October 1, 2018, and the person has a no-cancellation policy, the existing rules will apply. However, the Government has stated that where a similar sale of an accommodation is made for a period on or after October 1, 2018 and the person has a cancellation policy then the new rules will apply.
Contact Facet’s Tax Accountants in Vancouver or Langley
It will be important to review your current rental units to determine how the October 1, 2018 changes may apply to you. As seasoned tax accountants in Vancouver and Langley, the team members at Facet Advisors can help determine how the new legislation may affect your corporate or personal taxes.
To learn more or if you have any questions regarding the above information, please contact your Facet Advisors professional, or call 604-534-3004.