International Trade Committee on June 5th, 2023

[The Vice-Chair, Conservative, Kyle Seeback]

I call this meeting to order.

Welcome to meeting number 69 of the Standing Committee on International Trade. Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Therefore, members are attending in person in the room and remotely, using the Zoom application.

I have a few things to mention.

Please wait until I recognize you before speaking. For the translators, please speak slowly and clearly. For those of you participating virtually, please click on the microphone icon to activate your mike. Please mute yourself when you're not speaking, in order to cut back on feedback. With respect to interpretation, for those of you on Zoom, you have the choice at the bottom of your screen of floor, English or French. Select that as appropriate. For members on Zoom, please use the “raise hand” function if you wish to speak, so that you can be identified by the chair. The clerk will manage the speaking order.

Finally, no photos are permitted to be taken in the room, nor screenshots on Zoom. If you have any technical difficulties, please let me know.

I have one housekeeping item that we should deal with before this starts. You should have all received from the clerk a copy of the draft budget for the study of the underused housing tax on Canadian border communities.

Is it the pleasure of the committee to adopt the budget in the amount of $12,750?

(Motion agreed to)

Great.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, May 29, 2023, the committee is beginning the study of impacts of the underused housing tax on Canadian border communities.

Today, we have with us Richard Halinda, barrister and solicitor. We also have Thomas Davidoff, associate professor at the Sauder school of business at the University of British Columbia, by video conference.

Welcome, everyone. Thanks for taking your valuable time to come here today.

We'll start off with opening remarks, and then we're going to proceed to rounds of questions.

Mr. Halinda, I invite you to start. You have somewhere around five minutes.

[Richard Halinda, Barrister and Solicitor, As an Individual]

Thank you, Mr. Chair.

It's a privilege to be here at this committee. Hopefully I can help you out in understanding this UHT and what we need to do about it.

I am a practising lawyer from Niagara. I've been practising for over 40 years. I'm native to Niagara.

A good part of my practice is looking after U.S. citizens who have cottages in Ontario—mostly in Niagara, but all over the province—most of which are owned by middle-class Americans generationally. My representation involves buying and selling these cottages and also helping the families to do estate planning with these cottages to pass to the next generation. I also look after the Canadian tax filings for them, so I have a long working relationship with CRA—that's for sure.

Niagara is a community that borders Buffalo, New York, and Niagara Falls, New York. Really, we are one community with a river that runs through it. That's the bottom line: We're one community. In this case, it happens to be the Niagara River. Many of us spend time on both sides of the border.

My understanding is that the purpose of the UHT Act was to address the fairly recent crisis in the housing market for Canadians in the big urban centres and to tax non-Canadians who have parked their money here, buying up residential properties while these units are sitting vacant and underused. That is a noble objective, and I support it one hundred per cent. It's worth implementing, but only in the right circumstances.

It makes no sense when we're dealing with residential properties that have been purchased and used by non-Canadians for many years as summer residences or what we call “cottages”. Specifically, our area in south Niagara, which consists of Fort Erie, Crystal Beach, Port Colborne, Wainfleet and actually the whole north shore of Lake Erie from the Peace Bridge all the way to the Ambassador Bridge in Windsor, has been cottage country for U.S. citizens for over a hundred years. Many families are into their third generation of owning these cottages. These are not the people who have parked their money in Canada for passive income. They reside here during the summer months, generally May 24 until Labour Day. They are members of our local community, including our sporting organizations, clubs and churches, a number of which they have founded or co-founded, as well as being big supporters of our local businesses and cultural events. Those members on the committee who live in similar areas will be familiar with these summer residents and what they mean to our communities.

The act sets every non-Canadian residential owner the task of filing a UHT tax return, which is different from the T1 returns that we file, and each of these property owners has to first obtain a Canadian tax ID number to do so. The requirement for them is to file and, if they don't have an exemption from the tax, to pay the tax, which is equal to 1% of the value of the property. This has left a bad taste in the mouths of many of our U.S. citizens who are our summer residents. They believe that the community—that is, the Canadian element of our community—has abandoned them, and we've seen an exodus as they have been selling their cottages.

We were advised that this act and the regulations would exempt cottages and recreational properties, but that has proven not to be the case. The act has created a series of available exemptions from the payment of tax, but there are too many inequities as to how those are implemented.

I could speak for a couple of hours on this. I understand I have only five minutes and I've already used some of that up, so I would be more than happy to discuss this through the question-and-answer period and I welcome any questions you have in that regard. However, I would say simply this: In my opinion, the exemption from the requirement to pay tax should be based on usage—that was the idea—and not so much on where it is located. We have situations in which one summer resident here is exempt and another on the same street is not exempt. That's just one of the inequities that I can talk further to you about.

The act and its regulations have created and have had an inequitable and discriminatory effect on our U.S. summer residents. I've offered my time to the government to sit down with decision-makers or drafters of legislation to produce further regulations under the act to eliminate these problems. I've even provided sample draft clauses for this purpose. In February, I wrote to the Honourable Deputy Prime Minister in regard to this, and I'm waiting for the response from her or from people in her office. I'm prepared to work with everybody on this.

These issues are not true just for Niagara but for countless waterfront areas, lakes and rivers all across our country. This is more than just a border community issue, but it is a border community issue as well.

The filing deadline for the 2022 UHT return and the payment of the tax was extended by the government to October 31 from the April 30 requirement. These regulatory changes are needed to be in place by then, so there is a sense of urgency to this matter. Our summer residents deserve to be treated fairly and better than they have been. We would expect nothing less for our Canadians who winter in the United States, and we would not want any kind of reciprocating tax to be applied to them.

I know that this has been talked about. I believe that Congressman Higgins will be talking to you this afternoon, and I'm sure he will have something to say about that. I don't want us to go there. I would be more than happy to assist this committee in its further investigations and deliberations on this matter. I can provide you with written materials.

However, the bottom line is that taxing these cottages is not going to do anything to solve the housing crisis that this act was supposed to deal with.

[The Vice-Chair, Conservative, Kyle Seeback]

I'm going to have to interrupt you there. I gave you a little extra time because we only have two witnesses this hour, but we will now have to move to our next witness.

Please go ahead.

[Dr. Thomas Davidoff, Associate Professor, Sauder School of Business, University of British Columbia, As an Individual]

Hi there. My name is Tom Davidoff. I'm a housing economist at the University of British Columbia.

I'm going to focus my remarks on the following considerations. Number one, expensive housing markets in the U.S. historically have had high property tax rates overall and required Canadian owners of vacation properties to pay higher effective rates than some U.S. residents. Number two, taxes on homes that are not primary residences are a reasonable form of taxation. Number three, I don't see a strong case for imposing taxes or quotas differently by nationality, as good alternatives are available.

On the first point, the U.S. has only recently eliminated federal income tax deductions for local property taxes. An American with a combined state and federal marginal tax rate of 40%, and with sufficient itemized deductions, received a 40% tax break on their property taxes through deductibility. I enjoyed large writeoffs in that way when I taught at UC Berkeley and owned a home in Oakland. Of course, that would not be available to a Canadian who owned a property in the U.S. because they are not U.S. taxpayers.

While that preference was recently removed, I don't believe that fairness considerations with respect to Canadian owners of U.S. property played an important role in that rollback. In fact, I suspect it had nothing to do with it at all. I am a proud dual U.S. and Canadian citizen, but in this case I do not believe unfair differentials in property tax rates between Americans and Canadians should be an important consideration.

On the second point, expensive Canadian cities, particularly Vancouver, where I am now—thank you for letting me speak remotely—have highly suboptimal mixes of income and property taxation. Our tax system, roughly speaking, provides the following instructions: Do not work for a living; we tax income and sales at high rates. Do buy property; residential property faces very low mill rates relative to the U.S.

That's the tax code, but by contrast, our regulatory system provides the instruction that affordable homes should not be built. Instead, we reserve most of our land for single-family homes, which are far beyond the reach of the overwhelming bulk of the income distribution in Vancouver and Toronto. Of course, developing raw land is—appropriately—very difficult.

What's the outcome of that combination of taxes and regulations? We've invited the local and the global rich to buy property in Canada and have fed gigantic investment demand for Canadian homes, which is pushing up prices. That's not the only cause of housing unaffordability here, but it doesn't help.

Here's a fact from research done with students of mine, Paul Boniface Akaabre and Craig Jones, and I've included links to two relevant papers.

Homes in the top 5% of value in greater Vancouver, as of 2018, had a median value of $3.7 million, but the median owner of these homes paid income taxes of just $15,800. Buying that home with Canadian taxable income and 20% down would involve paying hundreds of thousands of dollars in annual income taxes. The relationship between earned income in Canada and property value is very weak in greater Vancouver.

Instead of low property taxes and high-income sales taxes, we should have the opposite. We should have low income and sales taxes and high property taxes. As you know, pushing for generally higher property taxes is politically unwise, so that's not on the policy menu. However, it is entirely reasonable to approximate good policy by requiring owners of properties who do not contribute income taxes here to pay higher property taxes. Empty homes taxes in Vancouver and B.C. have raised considerable revenue provincially and appear to have returned many homes—thousands and tens of thousands, even—to primary residence use.

The foreign empty homes tax is one approach, but an alternative would be just to charge an alternative minimum tax based on property value. Just in greater Vancouver, a very reasonable minimum income tax of 1% of property value would raise something like $2 billion annually.

What do I mean by that? I mean that if you have a million-dollar home, you have to pay $20,000 in income tax. If you pay $10,000 in income tax, then under that proposed alternative tax, you'd kick in an additional $10,000. You could raise $2 billion a year from that annually in greater Vancouver and a similar amount in greater Toronto, which is larger but where incomes and property values are more closely linked.

Using income taxes paid or declared rental income as exemptions, along with long-term primary residence exemptions for seniors, you'd obviate any of the ethical and trade problems associated with nationality-based taxes and bans.

Thank you.

[The Vice-Chair, Conservative, Kyle Seeback]

You get the gold star for timing. You had four seconds left. You did exceptionally well. Those were some great points.

I'll turn to our first round of questions, and I'll go to Mr. Baldinelli for six minutes.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you, Chair.

Thank you to our witnesses for being with us this morning.

I'm going to begin by going to Mr. Halinda.

Today's study is on the impacts of the underutilized or underused housing tax on Canadian border communities.

Mr. Halinda, you talked briefly about the uniqueness of our community and the relationships. I always say it's a binational community. Americans have been locating cottages there since the 1800s. I think the Crystal Beach Amusement Park was built in 1888, and the Cherry Hill golf course, which hosted the Canadian Open in 1972, was formed and built in 1922 by nine Americans who were cottage residents there.

I was wondering if you could quickly talk about the uniqueness of our community.

[Richard Halinda]

Thank you.

Yes, it is unique and again there are many spots along the lake—I'm familiar with Lake Erie because I grew up there—but at the end of the 19th century, many Americans came over to the northern shore of Lake Erie and bought property. In fact, they opened up subdivisions there where cottages were being built. This is before there was a Peace Bridge and they had to come over on a ferry. That ferry left the city of Buffalo and landed in the little village of Crystal Beach, a little hamlet. There in 1888, you're correct, the Crystal Beach Amusement Park was built, one of the first ones in the area. That whole area became a summer resort.

There are hundreds and hundreds of cottages that were built there, all by Americans, from 1888 through the end of the First World War and thereafter, so they're part of the community. They live there.

I grew up in Port Colborne, as I think I said. I knew when the May 24 weekend was because our pastor would stand up in that pulpit and say one thing he said once a year, “I welcome our summer residents.” Now, he didn't say, “I welcome the foreigners”, “I welcome the non-citizens”, or “I welcome the Americans”. They were the “summer residents”. That's what my parents called them, and that's what we called them. They were the residents of our community.

If you don't live in a border town, that may be hard to imagine, that two different countries could be together, live together as one, but that's how I grew up and it's still that way to this day.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

I agree with you, and that's how I've grown up as well. My wife went to nursing school at Dyouville. My brother put both his boys in high school in Buffalo. Despite the fact he only lives two minutes away from me, he puts them in high school in Buffalo. It isn't an international border. It's a river that separates two friends, for example.

The government said it would have consulted with stakeholders prior to the implementation of the unused housing tax. When were you first made aware, or did you or any of the residents you represent have any input into the stakeholder discussions?

[Richard Halinda]

I did not, nor did any of the people I know have any contact with it.

I came across it because, at the Canadian Bar Association when new legislation comes out, we get notice of it. I got a copy of the UHT Act and I read it. That's when I really learned about it. It's a very difficult act to read, as most tax acts are. I do tax work, so I know they're difficult to write and they're even more difficult to read, but I had some real concerns with it. Therefore, I started on this avenue to try to learn about it and to get this thing fixed, because I thought there were issues in March 2022. I've been at it for more than a year.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you for that.

I had the same.... I was contacted by an American resident in February of 2022, wrote to the government in March of 2022, actually raised it during my budget discussions in the House of Commons in April, and then we held summer consultations in 2022 with American residents, all trying to get clarification on the rules. We're here a year later, and we're still seeking clarification on some of the rules.

You say there could be some quick regulation changes that could address some of the concerns. Could you not only table that information, but could you quickly describe some of the regulation changes that you think would handle these concerns?

[Richard Halinda]

In a nutshell, there are a couple of things that we could do very easily.

The regulations set up a scheme of rural and urban areas. Now, these are not based on where the cottages are. These are based on the census maps that the Government of Canada has that define urban and rural areas. If your cottage is in a rural area and you're there 28 days a year, you're exempt from the tax. You still have to file, but you're exempt from the tax. It makes sense because you're using it. It's not underused. However, if you're in an urban area, you don't get the 28-day exemption even if you're there for 128 days, which makes no sense.

If we go back to Crystal Beach, this little community of 8,500 people, all these cottages built around that park—the park is gone now, but the beach is still there, a beautiful beach—don't get the exemption because, from the census map, they're in an urban area.

Why?

If they're using it, why aren't they getting the exemption? It should not matter whether you're in the rural area or the urban area. If you're using it, you're using it. It's not underused and it's not vacant. That's the first thing—

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you for that.

Can you table your proposed regulation changes that you'd like to see and also the letter you've written recently to the Deputy Prime Minister?

[Richard Halinda]

I'd be happy to do that.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you.

[The Vice-Chair, Conservative, Kyle Seeback]

That's great.

That's your six minutes.

Now we'll turn to Mr. Virani for six minutes as well.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Thank you very much.

Thank you, Mr. Halinda and Mr. Davidoff, for your testimony.

Mr. Davidoff, I want to start with you.

The genesis of what we have with the underused housing tax is dealing with housing affordability and the fact that housing affordability is informed by many components, as you outlined. One of them is people who effectively are parking money in Canadian properties and not using those properties, and that's actually depriving Canadians of a chance to purchase those homes. It's making those homes more expensive to purchase or sometimes even depriving them of an opportunity to rent those homes.

Do I have that aspect of the rationale correct, Mr. Davidoff?

[Dr. Thomas Davidoff]

I can't tell you what the rationale of the government was. I'm sure it was a concern about housing affordability. Of course, homes that aren't used as primary residences, be they by non-Canadian or Canadian people able to afford second homes, take away the affordability for people who just work for a living in a given market and want to live in a home.

[Arif Virani, Liberal, Parkdale—High Park, ON]

You're talking from Vancouver and I represent constituents in Toronto, but this isn't just a Vancouver or Toronto phenomenon. Is that fair? The escalating price of housing is something that's affecting Canadians across the board.

[Dr. Thomas Davidoff]

I believe that is absolutely correct. People are mobile, as you know, and immigrants are particularly mobile inherently. Before too long, the deal—the total amenity, wage and cost of living package—in any two Canadian cities has to equalize. It can't be a better deal to live in Moose Jaw than it is in Vancouver, or else everybody would move from Vancouver to Moose Jaw. Problems in one Canadian community eventually are going to be problems in all Canadian communities.

[Arif Virani, Liberal, Parkdale—High Park, ON]

In calibrating, there has been some talk thus far about the consultations that took place, etc., but in calibrating the actual tax itself there are some efforts made to ensure that people who are using their properties, as opposed to those who are leaving them vacant, are not caught. Can you talk a bit about some of the exemptions that were made?

I'm going to direct you to two. I understand that if your property is not accessible year-round.... Let's say it's just a summer property and can't be accessed year-round. That's not the type of property that a Canadian might want to buy and live in as a year-round home. Therefore, that's not subject to this tax. If you can, confirm if my understanding is correct.

Secondly, with respect to the exchange we were having with Mr. Halinda here, can you comment a bit about this issue of using a property for 28 days as long as it's in an eligible area? How is that exemption operating on the ground?

[Dr. Thomas Davidoff]

Is that for me or Mr. Halinda?

[Arif Virani, Liberal, Parkdale—High Park, ON]

It's for you first, and then I'll ask Mr. Halinda to comment as well.

[Dr. Thomas Davidoff]

I'm going to defer to Mr. Halinda in terms of implementation on the ground.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Can you just clarify? Is my assessment accurate with respect to seasonal properties that are open only in the summertime, for example? If it's not a year-round cottage—it doesn't have heating—it is not subject to this kind of tax. Is that correct?

[Dr. Thomas Davidoff]

That's my understanding, but I didn't implement it. I'm not familiar with that detail.