New Hotels Canada Report Shows How Federal Action Can Strengthen Conditions for Hotel Investment

Federal tax reforms could unlock hotel development, strengthen tourism infrastructure, and keep Canadian investment capital at home

Today, Hotels Canada released Competing for Capital: Why Canada Must Act Now to Secure Hotel Investment, a new report highlighting Canada’s growing competitiveness challenge in attracting hotel investment and outlining four federal policy reforms to address it.

The report finds that while investor confidence in Canada’s hotel sector is positive, stronger returns in the U.S. are competing for investors’ capital. In Canada, investment is being directed toward acquisitions and renovations rather than new development. Investors are more than twice as likely to pursue existing assets than build new hotels, reflecting the growing challenge of delivering competitive returns on new projects in Canada despite strong tourism fundamentals.

“The issue is not a lack of investor interest in Canadian hotels,” said Beth McMahon, President & CEO, Hotels Canada. ” There is significant capital ready to be invested in Canada, particularly in markets where tourism demand continues to grow. The challenge is that our current tax treatment often makes it more attractive to invest elsewhere. If we want to attract and retain investment, create jobs, and support economic growth, Canada needs a more competitive tax framework.

“Investor interest in Canadian hotels remains positive, but there is a clear distinction between acquiring an existing property and developing a new one,” said Robin Mcluskie, Managing Director, Hotels, Colliers who partnered with Hotels Canada on the Hotel Investor Sentiment Survey. “The report highlights how project costs, financing conditions, and tax treatment shape those decisions—and why strong tourism demand does not automatically translate into new hotel supply.”

The report highlights that:

• Hotels are essential infrastructure that support Canada’s $35 billion in annual tourism exports.
• Nearly half of Canadian hotel investors (46%) have invested in or are considering the U.S.
• Investors are more than twice as likely to pursue existing hotels than new development in Canada.
• A Ottawa-Philadelphia project comparison found a nearly 2:1 after-tax return advantage for the U.S. project.

To strengthen Canada’s competitiveness, Hotels Canada is calling on the federal government to:

• Expand replacement property rules under Section 44 to allow investors to defer capital gains when proceeds are reinvested into capital property, helping Canada better compete with the U.S. 1031 Exchange.
• Tax Capital Cost Allowance recapture at the capital gains rate, rather than the corporate income tax rate, when proceeds are reinvested in capital property.
• Modernize the Excessive Interest and Financing Expenses Limitation (EIFEL) rules by adopting an EBITDA-based approach that better reflects the realities of capital-intensive industries such as hotels.
• Expand the Productivity Mega Deduction to include a 100% first-year write-off for new hotel buildings.

The report underscores a simple reality: capital is not patriotic. Investors will deploy capital where they can achieve the strongest returns, meaning Canada must increasingly compete not only for foreign investment, but also for its own domestic capital.

ACCESS THE REPORT