REALTORS®, representing all regions of the country, met with their MPs in Ottawa to discuss real estate issues they believe matter to Canadians.
The Canadian Real Estate Association (CREA), representing 98,000 REALTORS® nationwide, sponsored the successful political action meeting in Ottawa.
Last year, Prime Minister Stephen Harper and Finance Minister Jim Flaherty visited the REALTOR® delegates to talk about the government’s economic action plan and how it relates to housing for Canadians.
One issue covered with MPs this year is extremely important to addressing a real deficit in rental accommodations across the country. According to the Canadian Federation of Apartment Associations, purpose-built rental housing starts across Canada have declined over the last 35 years from an average of 60,000 starts per year to an average of less than 15,000 starts per year. This is happening despite population increases in most regions.
By allowing a tax deferral on investment rental properties, CREA believes it will act as an incentive to stimulate more investment in rental housing.
The full CREA position is as follows.
Unlocking property reinvestment
Position — Allow the capital gains tax and the recaptured capital cost allowance to be deferred when an income property is sold and the proceeds are reinvested in another income property within one year.
The issue — Many average Canadians are reluctant to sell in order to reinvest in another income property because of the tax consequences. Paying the capital gains tax and recapture of the capital cost allowance leaves investors with less equity and often unable to acquire a property of similar value.
Removing the disincentive to reinvestment, by allowing tax deferral, would rapidly trigger a chain reaction of benefits for the economy, communities and the environment. Moreover, this would occur without program delivery slowdowns caused by complex bureaucratic implementation issues.
This is a Main Street proposal. Dr. Thomas Wilson of the University of Toronto found those with net incomes of $50,000 or less accounted for approximately 58 per cent of those reporting rental property capital gains.
It would restore fairness in the tax system for investment property owners. Tax deferral is permitted under various circumstances, such as when a “former business property” is voluntarily disposed and a “replacement property” is acquired.
This proposal would help stimulate demand for the struggling commercial real estate sector, which has yet to rebound from the global economic recession. In 2009, vacancy rates increased and rents declined. Uncertainty about the strength of the economic recovery continues to weigh on demand for commercial real estate in 2010.
A healthy commercial real estate market spins-off opportunities for trades people in renovations and redevelopment; fees for professionals; income for industries that mine, harvest and manufacture construction materials; as well as tax revenue for all levels of government.
In fact, research from Altus Group estimates, between 2006 and 2008, the typical multi-unit residential income property transaction in the Greater Toronto Area, Greater Calgary Area and Greater Vancouver Area generated $287,850 in ancillary spending. The Altus study also found more than one job was created for every two transactions.
Tax deferral would help create additional housing capacity to meet the demands of rental housing and urban intensification. Purpose-built rental housing starts across Canada have declined over the last 35 years from an average of 60,000 starts per year to an average of less than 15,000 starts per year, despite population growth.
This proposal would also assist Canadians saving for retirement, as well as retirees dependent on regular income, by making real estate a more viable investment vehicle. It would also enable Canadians to relocate their real estate holdings to correspond with a move to another city, something that is easily done with a stock or bond portfolio.
There is widespread support for this proposal, including the National Trade Contractors Coalition of Canada, the Canadian Construction Association, the Appraisal Institute of Canada, the Canadian Federation of Apartment Associations and REALpac — the Real Property Association of Canada.
The Canadian Chamber of Commerce has passed a policy resolution recommending tax deferral on property reinvestment.
Many MPs are receptive to such a proposal, though is does have initial cost implications and that always has to be weighed when trying to reconcile what the costs and benefits to any proposal are. Suffice it to say, a well thought out vehicle to encourage the private sector to provide badly needed rental accommodations deserves the government’s serious consideration.
To actively welcome new Canadians to this country, as many provinces including Manitoba are, there has to be a sufficient supply of all forms of housing, and CREA’s move to unlock investment in rental housing certainly has the potential to help address this issue.