The government of Prime Minister Justin Trudeau has backed away from a proposed tax change targeting real estate investment trusts (REITs) in Canada. This decision came after significant opposition from the real estate industry, which argued that such a tax could harm the housing market.
On May 8, the finance department posted a brief statement on its website, clarifying that "no changes to the tax treatment of REITs are being considered at this time." This announcement effectively removes a looming threat that had been a concern for Canadian apartment REITs for over two years.
The initial tax proposal emerged in March 2022, when Trudeau’s Liberal Party, lacking a majority in the House of Commons, formed a power-sharing agreement with the opposition New Democratic Party (NDP). Part of this deal included addressing the "financialization of the housing market," which scrutinized corporate owners of apartment buildings.
During the 2021 election, the Liberal Party had promised to review tax policies to curb what they described as "excessive profits" of large residential property owners. Under the current REIT structure, profits flow through to shareholders and are taxed at the shareholder level. Introducing corporate income tax on REITs could have made these investments less attractive, especially at a time when higher interest rates have already depressed their valuations.
The real estate sector strongly opposed the potential tax changes, arguing that the resulting uncertainty increased their capital costs and hindered the development of new housing projects.
"While more needs to be done to ensure that Canadians are not subject to renovictions and that rental units are affordable for Canadians, the government understands that REITs provide a critical channel for new investment in rental units," the finance department’s statement read. This announcement was first reported by CoStar.
Renovictions refer to the practice of evicting tenants to renovate apartments, allowing landlords to charge higher rents.
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