GTHA: A Tax on the Family Vacation

TORONTO — The City of Toronto's vote to implement a 4 per cent tax on hotel rooms would amount to a tax on the family vacation and small business, said Terry Mundell, president of the GTHA.

Terry Mundell

Terry Mundell

TORONTO — The City of Toronto's vote to implement a 4 per cent tax on hotel rooms would amount to a tax on the family vacation and small business, said Terry Mundell, president and CEO of the Greater Toronto Hotel Association (GTHA). And what's more — only the province can change the City of Toronto Act to give the city the authority to implement such a tax.

Mundell spoke emphatically and passionately in an interview with CLN about the effects the tax would have on hotels in the City of Toronto. 

“Our association has been aggressive on this issue,” he told CLN. “The City of Toronto does not have the authority to implement a hotel lodging tax under current legislation. We have fought for this section in the last couple of reviews,” he said. 

“City council voted in favour of a 4 per cent tax on hotel rooms. We don't know if HST will be included, but we know the revenue will be used for city operations.”

City of Toronto competitiveness

GTHA commissioned CBRE to conduct an extensive study of the competitiveness of hotels in the city of Toronto, which they have presented to city council and the Economic Development Committee.

The study found that Toronto has the second lowest net operating income (NOI) compared to the top 17-20 North American destinations. (The lowest was Montreal.) Toronto's average total RevPAR was $80,000 per room, compared to Chicago, with a similar population, which has average total RevPAR of $115,000 per room. Vancouver is higher than Toronto, and Montreal is a little lower. Toronto electricity costs are the highest, for example.

The study also found the number of hotel rooms in Toronto, 25,000, has actually declined by over 200 rooms since since 2000. The 905 districts right next door have added over 50 hotels or 5,500-6,000 rooms during that same period, and now have 19,000 hotel rooms. That's a similar number of rooms to Vancouver or Montreal. 

“This gives the city of Toronto a competitive situation like no other in Canada. Nobody else has a competitive set  right next door with a 4 per cent difference in tax,” Mundell said.

“For people who don't think that 4 per cent makes a difference, they're wrong. Four per cent makes a huge difference when bidding conventions.

“And for investors, the best spot to build new hotels is outside the city of Toronto.”

Airbnb still wouldn't pay fair share

Under the city hall resolution, Airbnb-type accommodations won't pay HST, but would be subject to a 10 per cent hotel tax. 

“At minimum, they should be up to the HST level. On the OTAs, if you book a hotel room, there's an HST component,” but for Airbnb-type accommodations there's none. Mundell added that Airbnb has a significant presence in Toronto, with more than 10,000 rooms, the equivalent of a 350-room hotel — the size of the Toronto Park Hyatt — operating at 75 per cent occupancy.

Relationship with existing DMF

While the tax passed by city council would go directly to city operations, the existing voluntary Destination Marketing Fund (DMF), consisting of up to 3 per cent of hotel room revenue, goes entirely towards marketing the city and attracting conventions.

“Retail, restaurants and attractions all benefit from the DMF. The tax would hurt their businesses as well.”

Mundell pointed out that the DMF would probably die, because hotels can't sustain 20 per cent (13 per cent HST + 4 per cent hotel tax + 3 per cent DMF).

The issue is not confined to Toronto hotels, he said. “It's a tax on Ontarians since one in three stays in Toronto is by people who live in Ontario. It's no different from tolls or the cost of electricity — it's a tax on the family vacation,” he said. “It's a tax on small business and a tax on investors.”

He also expressed concern that the tax could expand across the province. “We've heard other [Ontario] mayors want the same deal as Toronto.”