Thank you.
Good morning. My name is Lorne Shillinger. I am a partner and national leader of the KPMG Canada Real Estate Tax Practice. I greatly appreciate the opportunity to speak with the committee this morning on the importance of the technical tax amendments act and its significance to the real estate industry.
Bill C-48 represents a Herculean effort by the Department of Finance to catch up on a decade of outstanding tax measures. Long limbo periods are difficult. Taxpayers and their advisers need certainty of tax policy and legislation to prepare and file tax returns. Accordingly, the enactment of this legislation will be a welcome relief to the tax community. For the real estate industry, the key amendments in Bill C-48 are the changes to the tax rules governing real estate investment trusts, or REITs.
A REIT is an entity that uses the pooled capital of many investors to invest in and manage real estate rental properties. Unlike direct ownership of real estate, an investment in a publicly traded REIT is highly liquid and available to investors with limited investment capital. REITs are managed and structured to pay out regular, tax-efficient distributions to their investors. For these reasons, investments in REITs have been favoured for retirement savings. These legislative changes represent the successful culmination of six years of back-and-forth discussions.
A brief review is in order. On October 31, 2006, new rules, the SIFT rules, were announced to shut down the public income trust sector. After a reasonable transitional period, a publicly traded SIFT would be subject to tax at rates similar to corporate tax rates. REITs, however, would be exempt from the SIFT tax. This was the first time the definition of a REIT was introduced into Canadian tax legislation. Each subsequent iteration of the legislation was an improvement.
In early 2007, amendments clarified a REIT's rental revenue and property and allowed internal property management subsidiaries. In late 2007, amendments accommodated existing ownership structures and allowed foreign property ownership. In late 2010, amendments further clarified a REIT's qualifying revenue and provided a welcome, safe harbour for a limited amount of non-qualifying revenues and properties to be held by a REIT. The changes in Bill C-48 represent the fourth set of revisions to the REIT rules and complete the cycle. These further changes finally create a workable system for REITs to invest in, develop, and manage real property and to expand globally. Actually, the real estate industry would like a fifth series of amendments, especially to accommodate seniors housing and hotels to qualify as REITs.
In conclusion, we greatly appreciate this legislative process. The Department of Finance did listen. The amendments in Bill C-48 provide the necessary legislative framework for Canadian REITs to invest in and operate in Canada and abroad. Both the industry and government objectives are met. REITs can function in a commercially reasonable manner but must do so within the limitations imposed by policy. For all constituents of the REIT community, we greatly look forward to the enactment of this legislation.
Thank you.