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Canada introduces tax measures to alleviate housing scarcity

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Canada adopted tax measures on Tuesday to alleviate a severe rental housing scarcity by limiting income tax deductions on short-term rentals through sites such as Airbnb Inc. (ABNB.O.) and VRBO, joining many other countries in passing similar legislation.

The new laws take effect on January 1 in provinces and municipalities that prohibit short-term rentals and affect deductions such as interest expenses, according to the federal government’s fall economic statement.

According to the analysis, an estimated 18,900 residences in Montréal, Toronto, and Vancouver were used as short-term rental rentals in 2020, with the number “almost certainly increasing in recent years.”

Airbnb, on the other hand, claims that listings in Toronto and Montreal have decreased since 2020.

Similar regulatory limits, such as those in Australia and Italy, could further erode the profitability of companies like Airbnb, which are facing a backlash from hoteliers.

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“Home-sharing regulations are not the solution to Canada’s housing crisis. The reality is that the majority of Airbnb hosts in Canada share one home to supplement their income, and listings represent less than 1% of the country’s housing stock,” said Nathan Rotman, Airbnb’s policy lead for Canada, by email.

“Many Canadians earn extra income through home sharing to make ends meet at a time of increasing inflation, interest rates, and the cost of living.”

Beginning in 2024, the government will pay C$50 million ($36 million) over three years to enable municipalities to implement short-term rental limits.

Property supply has lagged behind Canada’s immigration-fueled population growth, and property prices skyrocketed during the COVID pandemic as low mortgage rates encouraged purchasers working from home to make bigger bids.

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Canadian homebuilders are struggling to meet demand, while towns in the United States are enacting laws such as requiring hosts to obtain licenses and pay registration fees.

Gabriel Giguère, a public policy analyst at the Montreal Economic Institute, opposed the government’s plan to change the tax treatment of short-term rental apartment owners’ expenses.

“It’s not as if we’re a handful of Airbnbs away from solving Canada’s housing shortage. Any solution that does not involve a massive increase in the housing supply is unfortunately just a distraction,” Giguère said.

Florence, Italy, has banned new short-term house rentals, while Byron Bay, Australia, has limited the availability of select properties for short-term holiday stays.

British Columbia requires hosts to register with the province, has increased fines for violating municipal restrictions, and has limited rentals to only a portion of the primary residence. The rules will go into effect next year.

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