The City of Toronto’s licensing department has been directed to improve data management for the short-term rental registry after a municipal audit found that about 10 per cent of approved housing hosts may have overstepped the rules. Toronto Auditor General Tara Anderson also flagged challenges in determining whether municipal accommodations tax (MAT) has been accurately collected because details are missing from the information licensed short-term rental companies submit to Toronto’s revenue services department.

She concludes that administrators’ heavy reliance on manual review processes hinders oversight of the approximately 8,400 registrants currently approved to offer short-term rental accommodations in their principal residences. Her report and recommendations were adopted at Toronto Council’s most recent meeting in late July. This follows after Council updated the municipal bylaw governing short-term rentals earlier this year in an effort to make it easier to enforce.

“Challenges persist due to ongoing non-compliance and difficulties in enforcement, alongside limited resources, outdated techniques in data analysis and highly manual, labour-intensive internal processes,” the audit report observes. “It is essential to implement efficient and effective monitoring of the short-term rental operators’ adherence to the regulations to ensure the goals of the bylaw are being achieved as intended.”

Under Toronto’s rules, homeowners and tenants can rent out up to three bedrooms within their principal residence for a maximum of 28 consecutive days and no more than 180 days total in a calendar year. To do so, they must be registered with the City and the registration number must be cited in cross-listings with any of the three companies — Airbnb, Booking.com and PodsLiving.com — that are licensed to facilitate short-term rentals in the city.

In applying to join the registry, owners/tenants must supply identification and information for an emergency contact or contacts who will be reachable 24/7. Auditors found that successful applicants generally received approval and a registration number within three weeks, but, on average, administrators took four months to render decisions on the roughly 16 per cent of rejected applications during the 2021-2023 period due to the “additional investigation efforts” required.

Approved registrants are required to pay an annual registration fee, remit municipal accommodations tax (MAT) equivalent to 6 per cent of revenue earned from room rentals and make quarterly declarations to Toronto’s revenue services department even if they have no earnings for the period. Although Airbnb has committed to collect and convey MAT on behalf of registrants listed on its platform, which accounts for about 92 per cent of tax collected from the registry thus far, housing hosts are still obliged to submit individual quarterly reports to the City.

Audit data shows Toronto garnered roughly $20 million in MAT in the 42 months from the launch of the registry in September 2020 to the end of February this year. An additional $3.7 million was collected up to the end of 2023 from registrations and a surcharge applied on nightly bookings through licensed short-term rental companies’ platforms.

However, the recent update to the authorizing bylaw will increase the revenue from the latter fees. The annual registration fee for housing hosts will jump from $53.22 to $375 beginning in 2025, while short-term rental facilitators are now levied $1.50 per nightly stay booked through their platforms — up from the previous charge of $1.06 prior to June 30 this year.

Automation and API could enable information exchange and risk detection

The audit report acknowledges the many challenges that licensing staff faces in reviewing applications for the registry and underscores the impossibility of keeping track of every transaction for every night of stay, which numbered approximately 2.4 million across all registered properties during the period scrutinized. As part of the bylaw update, City Council has already called for the development and implementation of an application programming interface (API) to enable better information exchange with the licensed short-term rental platforms. The audit report further recommends advanced analytics and automation to focus on six indicators of rules violation.

The following are considered plausible-to-strong hints that short-term rental accommodations are not located in registrants’ principal residence:

• exceeding the limit of 180 nights per year for rentals;
• renting out more than three bedrooms per night;
• owners with multiple short-term rental properties:
• properties with legally approved secondary suites;
• using the same registration number for multiple properties; and
• relying on professional property management.

These are all risks that human administrators are currently monitoring through intuitive, labour-intensive processes.

“To pinpoint non-compliance, the MLS (municipal licensing and standards) compliance team primarily analyzes the transaction data for short-term rentals, focusing on past violations and active non-compliant listings. They target suspected operators, looking particularly for violations of the three-bedroom rule, by manually analyzing the transaction data,” the audit report advises.

During the period covered in the review, the auditor found that:1,438 housing hosts may have exceeded the 180-night limit; 545 may have exceeded the three-bedroom limit; and 170 may own more than one short-term rental property. Notably, 1,100 of the registered homeowners had a different mailing address for their property tax bill than that for the short-term rental accommodations. As well, there are concerns about pirated and non-compliant registration numbers showing up in listings on the short-term rental companies’ platforms, which are evident in a mismatch of information for advertised and registered properties bearing the same number.

Airbnb’s voluntary agreement to collect and remit MAT on behalf of registered housing hosts who are listed with the platform is described as “beneficial” for the City of Toronto. “It improves compliance, simplifies tax deduction at the source, streamlines collection, reduces reliance on remittance by operators and reduces the administrative burden on City staff,” the audit report maintains.

Nevertheless, the auditor calls for more transaction details from both Airbnb and the smaller number of housing hosts who collect and submit MAT themselves. The latter group is simply required to remit a lump sum and declare the number of nights of rentals it represents. Airbnb does submit transaction data separately to the licensing department, but this typically chronicles patrons’ check-in and check-out dates rather than when payment was received.

“Without additional transaction details accompanying remittances, reconciling or verifying the accuracy and completeness of Airbnb’s MAT remittances is challenging,” the audit report states. “Operators who remit the tax themselves are not required to provide transaction details. This results in the City relying on an honour system, expecting operators to collect and remit the correct amount of MAT.”

It’s recommended that Toronto’s revenue services department establish a quarterly reconciliation process to compare MAT remittances from more detailed transaction data that Airbnb and other short-term rental facilitators would be required to provide. Random “sampling and comparing” procedures are also proposed for housing hosts.

Verifying consent from landlords and condo corporations

Among key concerns for landlords and condominium corporations, the audit report calls for more vigilance to ensure renters have the unit owner’s consent, and that offered condo units are not located in buildings where short-term rentals are prohibited. The City currently does not require proof that tenants have permission to rent out short-term accommodations in their units, but there is an expectation that they do and that they will also abide by Ontario’s Residential Tenancies Act when they effectively become landlords.

The audit report cites examples of other cities, including Ottawa, Vancouver and New York, that directly inform property owners when tenants apply to register units for short-term rentals or require tenants to submit written consent from their landlords with their applications — and suggests a similar policy could better protect Toronto against liability. As of January 2024, three lawsuits had been registered against the City for neglecting to confirm a tenant had the landlord’s permission.

“The City needs to clarify the roles and responsibilities regarding landlord-tenant matters of all involved parties and consider adopting risk-based sampling procedures in the future for verifying landlord consent for short-term rental registrations,” the audit report states.

Meanwhile, the auditing team sampled the 20 downtown condo buildings that sport the highest concentration of registered short-term rental units (collectively amounting to 1,459 units). That exercise uncovered 42 registered units in a building that prohibits short-term rentals along with 41 scenarios where renter occupants had registered a unit even though condo rules restricted short-term rental hosting to owners only.

Toronto’s licensing department does keep a list of condominiums that have rules restricting or prohibiting short-term rentals, which numbered 145 buildings when the audit was conducted in January 2024. However, the report suggests more proactive monitoring could be employed at the application stage, rather than drawing on the information to revoke registrations at a later time.