The hotel industry is thriving again, with profits jumping last week as the global economy recovered from the financial crisis, even as the federal government continues to withhold more than $4 billion in tax revenues from hotel owners.
Hotel and motel-style rental properties in the United States, Canada, Australia and Europe all rose in the second quarter, boosted by a surge in demand from investors who want to earn a profit when they buy properties.
The industry is booming again, boosted last week by a jump in demand for properties.
(CBC)Hotel operators said they are benefiting from a renewed interest in staying at luxury hotels, with more and more people seeking them as they seek a more affordable accommodation.
But they warn that many of those hotel owners are taking advantage of a law that exempts hotel owners from taxes on profits earned from rentals.
The tax law exempts hotels from federal and provincial income tax and other state and local taxes.
Hotels are exempt from state income tax on revenue from occupancy, but the law also exempts profits from sales of rental properties, which could result in an exemption of up to 10 per cent.
The law applies only to hotel and motels, not all properties, according to The National Hotel Association of Canada.
The association said that’s a significant loophole, allowing owners to avoid paying taxes on rental profits, even if they sell their properties.
Some of those owners are also turning to more profitable rental property companies to meet their demand.
A handful of them have been operating in Canada since the beginning of the year, including the owner of the hotel that opened last week in Vancouver.
They’ve been operating a business called Avis for over a decade, but when they started the company in March of this year, it was a luxury hotel.
Avis, which was founded in 2011, now operates six hotels and two motels in Vancouver, including a luxury rental on Main Street.
(Matt Galloway/CBC)”We have a great team of people, and we’re in good hands with our landlords,” said Scott Wilson, president of Avis Properties.
“We’re in a good spot financially and that’s what people have been saying.”
Wilson said a recent surge in international tourists has made room at hotels a real luxury.
He says his company has been running a business in Canada for over nine years, and he said he’s seen a lot of money come in.
“When we have a big uptick in international tourism, it’s like we have to open a hotel.
We’ve opened a lot more properties,” he said.”
People are coming from all over the world, and they’re staying at the same hotels, so it’s a good business model.”
Hotel owner Kevin Wilson says he has been profitable in the past year.
(Matthew Galloway)Hotels in the Vancouver area have been selling at record prices, and the hotel industry says it’s making profits.
The Canadian Hotel Association, which represents the industry, said the hotel business is doing better than last year.
“The hotel industry has been doing well for some time,” said Kathy Burt, the association’s chief economist.
“It’s an industry that has grown by leaps and bounds and now it’s recovering,” she said.
In Alberta, the Alberta Government has lifted the tax exemption on hotel rooms, so hotel owners can pay taxes on revenues.
But the government has also lifted its tax rate on the profits from hotels.
In British Columbia, the hotel tax exemption has been extended to hotels with more than 20 units.
The hotel tax rate is currently 5.9 per cent, but Burt says that rate is set to go back up to 6.5 per cent in 2019.
“That’s the same as the rate we had when the tax rates were lower,” she explained.
“There’s a reason that we are seeing so much growth in the hotel sector.
We’re seeing the same things happening in Canada.
It’s really good for hotel owners.”