Good morning.
The CFAA represents the owners and managers of close to one million private rental homes across Canada. The need for the reforms we propose arises from the current divergence in the tax treatment of homeowners from the tax treatment of renters. Some of the policies that lead to that are set out on page 2 of our brief. Most low-income Canadians are not homeowners, and the larger part of the income tax benefits of home ownership do not accrue to low-income households, even if they are homeowners.
The tax treatment of rental housing has been made steadily worse since 1972, and on page 2 of the brief we have a rather lengthy list of those detrimental changes to the competitiveness and affordability of rental housing. In the French version the list spans pages 3 and 4.
In order to move toward a balanced housing policy, we suggest that Parliament provide improved tax rules for rental housing, providing a tax deferral on reinvestment by rental property owners, and zero-rating rental housing for the GST or HST.
First, allowing tax deferral on a real estate sale and reinvestment would reduce the cost of rental housing and improve affordability and housing supply. Second, it would promote efficient capital allocation across the economy. Third, it would promote more compact, environmentally sound urban redevelopment. Fourth, it would help small investors, middle-income families, and seniors, since investment rental property is much more widely held than shares or other assets. Fifth, it would permit relocation by owner managers and reduce absentee ownership. Sixth, it would level the rules between rental property and other businesses that already have a similar deferral. Seventh, it would level the rules between businesses that rent and businesses that own their premises. Finally, it would level the rules between rental property and shares in companies.
Three-quarters of company shares are held in tax-deferred vehicles, such as pension plans and RRSPs, but real estate is not eligible for RRSPs or TFSAs. We submit that the deferral cost would be reasonable and merely a deferral--not tax revenue permanently given up.
On zero-rating rental housing for the GST or HST, residential rental housing is an unusual business, in that it is GST-exempt. That means rental housing providers pay GST on their inputs but don't charge GST on rents. So the GST is effectively a cost of doing business that by economic forces is passed through under the price of the product, in our case into rents.
Groceries, another basic necessity, are treated differently. Groceries are zero-rated. So when Loblaws pays GST on rent, electricity, etc., the government gives them and other grocers rebates so those costs are not transferred to the cost of groceries and do not impact on that basic cost of living.
So we are asking for rental housing to be treated in the same way as the grocery industry through zero-rating. I recognize that would be a significant cost to the federal treasury--although it's not an insurmountable cost--but there is a very low-cost solution.
As an alternative to zero-rating I suggest that Parliament substantially increase the allowance for the governments of British Columbia and Ontario to create special rules for their portions of the HST. The industry is facing something of a crisis, because through harmonization additional costs will come to be subject to the provincial portion of the new HST in those provinces. The government agreement allowed certain exemptions and rebates to be made by the provinces, but both of them have used up all of their rebate and allowance amounts.
For the federal government to increase the allowance amount would put the ball back in the court of those provinces as to what they do when they bring in the HST, and the cost to the federal treasury would be negligible because it would merely be the administrative cost of dealing with another exemption when a whole variety of exemptions are currently being put in place.
Thank you for your attendance today.