B&Bs have reservations about 4% hotel tax coming to Ottawa

The city is set to introduce a mandatory four per cent hotel tax in the new year that is expected to raise as much as $12 million annually for Ottawa's tourism industry.

Councillors who are members of the finance and economic development committee will be asked Tuesday to approve the new tax that all hotels, motels, hostels, B&Bs and home-sharing companies like Airbnb rooms will have to charge starting Jan. 1, 2018.

While major hotels and Airbnb say they welcome the tax, some smaller operators have reservations.

Ottawa joins a growing list of Ontario municipalities who are considering charging an accommodation tax — all around four per cent — ever since the province gave cities the power to impose mandatory hotel taxes in the 2017 budget.

Quebec is one of several provinces that has a regional tax; it imposes a 3.5 per cent levy on all rooms hired for longer than six hours.

Small operators concerns

George Neufeld, co-owner of Ashbury House Bed and Breakfast in the Glebe, said the four per cent rate is "outrageous," especially when compared with the HST.

"I think we're going to have to hold our prices because otherwise we're going to have pushback from guests," he said.

Neufeld, who has four bedrooms and two apartments, is worried smaller operators like him will not be able to influence decision-making on how the money is used to promote tourism or events such as conferences.

"Maybe we start off with reducing the percentage that's applied to the smaller operators," Neufeld said. "Because we're simply not going to get the same representation — regardless what kind of representation we have on the board — in terms of promotion."

He said bed and breakfast owners may have to organize in response to the tax, which he described as motivated by the hotel industry.

​Welcomed by hotel industry, Airbnb

The Ottawa Gatineau Hotel Association (OGHA), which will be administering the tax, said operators of all sizes stand to benefit from the fee.

The money will be pumped into tourism efforts, which is a more effective way to bring visitors to the capital than each hotel trying to lure visitors on their own.

"Most of the major players recognize that this fee structure and the supporting of Ottawa Tourism is a smarter way to drive business," said Steve Ball, president of the Ottawa Gatineau Hotel Association.

"A larger investment in attraction-oriented and event-oriented marketing is going ot have a larger impact. And I think we proved that in 2017."

Airbnb, which pays hotel taxes in other regions, said it's open to paying an accommodation tax in Ottawa as well.

"We are committed to working with cities like Ottawa, to develop smart, easy-to-follow regulations that support home sharing — including regulations around taxation."

Mostly tourist tax

This is not likely to be a controversial tax locally, as it's only to be charged on room rentals that will be largely paid by visitors.

Indeed, hotels don't want to tax their other businesses, like conference rooms, restaurants and bars, because that could be "potentially taxing locals, and really the purpose is not to do that," said Ball. "It really just focuses on the room-revenue portion."

Asked whether tourists might be surprised by the new tax, which will have to be recorded as a separate line item on a hotel bill, Ball said: "I don't think they'll even notice."

He added this sort of tax "is commonplace in every major market that I know about in North America and in Europe."

Replacing voluntary 3% levy

Back in 2004, the local hotel industry introduced a voluntary three per cent "destination marketing fee" on guest rooms, which generates about $8 or $9 million a year. The money was collected by OGHA and then turned over to Ottawa Tourism to promote the capital as a travel destination.

About half of Ottawa's hotels participated in this program, although those establishments represent 90 per cent of the stock of rooms in the city, according to the report. 

The quick implementation date is necessary because the voluntary program expires at the end of this year, but the timing could be tricky for smaller businesses not already participating in the voluntary program.

According to Ball, there's a plan to give a "grace period" to places like B&Bs to adjust their administrative practices to include the new tax.