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The Airbnb app is displayed on an iPhone and iPad.

Andrew Harrer/Bloomberg

The B.C. government has reached an agreement with short-term vacation rental giant Airbnb Inc. that will see the U.S.-based company collect sales taxes, which the province plans to use to fund affordable housing.

As provincial and municipal governments put in bylaws to regulate Airbnb and similar services, B.C. Finance Minister Carole James said Airbnb will begin collecting the 8-per-cent provincial sales tax in its transactions, as well as up to 3 per cent in hotel taxes for local governments.

With 18,500 Airbnb providers in the province, the Finance Ministry expects the deal to bring in $16-million a year, as well as an additional $5-million to local governments.

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"Every penny makes a difference," Ms. James told a news conference Wednesday.

Airbnb will collect the provincial sales tax as well as the municipal and regional district tax, which is up to 3 per cent on short-term accommodations.

Municipalities in B.C. and across Canada have been working to regulate Airbnb and similar services, in large part to reduce their impact on local housing markets. Vancouver introduced regulations last year with an aim to ensure empty units are rented out to long-term tenants in a city with low vacancy rates. Toronto has also taken action on the file, passing new rules to crack down on short-term rentals.

Vancouver's regulations restrict short-term rentals of houses and apartments that are not principal residences, effectively banning full-time Airbnb rentals in otherwise empty homes. Those regulations come into effect on April 1. The new tax agreement announced Wednesday will go into effect once the province enacts legislative and regulatory changes.

Alex Dagg, an Airbnb executive, described the policy as a first in Canada because it involves a sales tax. In Quebec, Airbnb collects a 3.5-per-cent tax on lodging, but she said it is not a sales tax.

"This is a defining moment for Airbnb and for our hosts across this province," she told the news conference.

Ms. Dagg said the company first began collecting hotel and tourist taxes in Portland, Ore., and has since worked on similar agreements in 350 jurisdictions around the world. They include France and India, as well as the U.S. states of Michigan and California.

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The City of Vancouver, which had previously argued that such taxes should apply to Airbnb, welcomed the announcement.

"The city looks forward to working with the government of B.C. to successfully roll out the new agreement, and we hope that similar agreements are reached with other short-term rental platforms," the statement said.

Ms. James said she will have more to say about housing when the budget is tabled later this month, a spending plan that is expected to offer details on how the NDP government will address the housing crunch in the province.

The NDP has promised to build 114,000 new affordable rental, non-profit and co-op housing units across the province within 10 years and also provide a $400 annual payment to help tenants cover their rent.

She also said she was hoping other home-sharing companies will come to the table for talks on taxes, increasing the amount of revenue coming to the province.

In Vancouver alone, there are about a dozen vacation-rental platforms operating.

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"The sharing economy is here. We need to make sure, as governments, that we look at our tax systems and arrangements in place and we make sure we create a level playing field," she said.

In a statement released hours after the government announcement, Andrew Weaver, leader of the B.C. Green party, said that it was a "good first step from a tax fairness perspective," but that he does not expect it will do enough to change behaviour or free up long-term rental stock taken out of the market by short-term rental services.

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