Hotel and motel tax services: MAT, HST and a T2 built on the renovation cycle

An active business, even though it is real estate

Rooms plus staff plus services equals active business income: a hotel or motel corporation is not a specified investment business the way a plain landlord can be, so the first $500,000 of profit generally earns the small business deduction — about 12.2 percent combined in Ontario. Families that hold two or three properties in separate corporations share one limit across the associated group, so which property absorbs it is a planning decision, not an accident. Larger operations lose the small business rate and pick up monthly instalments instead; we set the calendar so neither change arrives as a surprise.

MAT sits inside the HST base, not beside it

Most Ontario municipalities now levy a municipal accommodation tax on short-term room revenue — commonly 4 to 6 percent, set locally. You charge it to the guest and remit it on the municipality's own schedule, and here is the detail that catches audits: the MAT forms part of the price for GST/HST, so you charge 13 percent on the room rate plus the MAT, not on the room rate alone. OTA bookings complicate the mapping — depending on the platform and the municipality, the guest may pay MAT through you or through the channel — so the books need a folio-level trail from the PMS to the GST34.

One more accommodation rule earns its own ledger account: a continuous stay of a month or more is generally exempt residential accommodation, not taxable lodging. A motel carrying weekly trades crews or insurance-placement guests can drift into exempt revenue without noticing, and exempt revenue quietly claws back input tax credits on shared costs. We flag long-stay revenue monthly rather than discovering it at year-end. Food and beverage is the opposite case — restaurant, room service and banquet revenue is ordinary taxable catering at 13 percent, with its own POS-to-return reconciliation.

CCA: the renovation cycle, classified

Hotel capital spending never stops — the flag's property improvement plan makes sure of that — and the size of the deduction depends entirely on where each dollar lands:

Two judgment calls matter more than the rates. Repairs versus capital: repainting rooms and patching carpet deduct now, while gutting a floor to the studs is capital even when the invoices say maintenance. And first-year acceleration: the enhanced first-year CCA rules have shifted several times in recent years, so we confirm the current rate before filing rather than assuming last cycle's answer still holds.

Franchise fees: three payments, three treatments

A franchised flag bills you at least three ways, and the T2 treats each differently. Ongoing royalties tied to room revenue deduct in the year charged. Marketing, loyalty and reservation-system fees deduct the same way. The initial franchise fee does not: a fee for a fixed-term agreement writes off straight-line over the term in Class 14, while rights with no fixed life fall into Class 14.1 at 5 percent declining. When the franchisor is American, the royalty stream also raises withholding tax on its way south — that file, along with OTA commissions and US investor-owners, lives on our hotel and motel cross-border tax page.

A year-end built around occupancy, not around April

We time the tax file to the property's rhythm: HST returns reconciled to the PMS every period, MAT filings on the municipal calendar, CCA planned when the PIP budget is set, and the T2 closed in the shoulder season. When a property trades, the purchase-price allocation between land, building and chattels sets recapture for the vendor and the CCA base for the purchaser — it belongs in the agreement, negotiated, not reconstructed after closing. Fixed fees quoted after a discovery call, cloud-first; the full engagement menu is on our tax services page.

Source: CRA — GST/HST for businesses.