Hotels in Ontario may soon be required to collect and remit new municipal hotel taxes.
The City of Ottawa, for example, recently implemented its own 4% hotel tax, effective January 1, 2018, and it appears that other municipalities in the province are also considering similar measures. This tax will also apply to other short-term accommodation suppliers in Ontario, as well as hotels. This change follows 2017 provincial amendments to allow municipalities to adopt their own hotel tax.
Any hotel tax rates and related rules may differ by region, since the provincial legislation offers a great deal of flexibility to municipalities in implementing this tax. As a result, hotels and other short-term accommodation suppliers must carefully review any related municipal bylaws to ensure they properly collect and remit the new hotel taxes, in all the relevant jurisdictions.
In its 2017 provincial budget, Ontario proposed that single-tier and lower-tier municipalities would be allowed to levy a hotel tax. Based on the provincial regulation, municipalities must adopt bylaws that prescribe the tax rate along with specific related rules in order to implement a hotel tax. The provincial rules provide that municipalities must share the hotel tax with qualifying non-profit tourism entities, based on prescribed formulas.
Businesses cannot claim credits for new hotel tax
Affected hotels and other short-term accommodation suppliers must identify the new hotel tax on a separate line on their invoices. The hotel tax will be part of the HST base, and as such, HST will also apply to the new hotel tax.
Note that businesses are not eligible to recover any hotel tax paid on their hotel costs and as such, cannot claim any hotel tax paid as input tax credits in their GST/HST returns (although the related HST paid may be recoverable under the normal ITC rules). Hotels should review their accounts payable procedures and systems to ensure that any hotel tax on their invoices is not incorrectly added to their GL account as recoverable taxes.
For more information, contact your KPMG adviser.
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