Real Estate NewsAssociations Push to Put Housing Back on Canadian Government"s Radar
With the federal election behind us, housing industry groups are now pushing the government to address issues that didn"t get any attention during the campaign. The Canadian Home Builders" Association (CHBA) says it is pleased with Prime Minister Stephen Harper"s election promise to provide a tax credit of up to $5,000 for first-time home buyers, but it wants the government to look at the long-overdue issue of indexing the GST rebate thresholds.
When the Goods and Services Tax was introduced in 1991, buyers of new homes priced at less than $450,000 got a break, as a way to improve housing affordability. Although the Statistics Canada New House Price Index has gone up by 57 since that time, the GST rebate threshold hasn"t changed. That means that as prices rise, the GST rebate program is effectively being phased out, says the CHBA.
"It is not only new home buyers who are disadvantaged by the lack of indexation of thresholds," says the association. "Because new and resale homes are similar, competitive products, the higher (GST-included) prices of new housing are reflected in higher prices in the resale market as well."
It says the purpose of the GST thresholds was to protect housing affordability over time, but "with almost all new houses in many major centres now ineligible for the GST rebate, action by the federal government to fulfill this commitment is now urgent."
The CHBA is also urging the government to address the shortage of skilled trades people in the residential construction industry.
"Canada is not even close to producing enough skilled trades people to meet demand in the residential sector," it says. "Canada"s pool of skilled trades people is too small now and will shrink dramatically under the weight of an unprecedented rate of retirements within the next five years."
The CHBA says immigration is a key source for skilled labour, and is asking the government for changes to immigration programs that have "important deficiencies that need to be remedied." These include revising language requirements for immigrants and employment experience requirements to recognize skills that are not yet certified.
Another way the government can help the labour situation is by making changes to an existing program that provides incentive grants to registered apprentices, and tax credits to employers of these apprentices. The CHBA says that although 25 of the 49 trades that qualify for these programs are in the construction trades, many of them are not employed in residential construction. It wants the list of qualifying trades to be expanded to include all residential construction trades for both the incentive grant and the Job Creation Tax Credit.
For many years the CHBA has also been pleading with the government to do something about the "underground economy" – the many construction contractors who perform work for cash payments to avoid paying taxes.
"The Government of Ontario estimated in 2001 that average annual government revenue losses from underground economy activity in the residential sector likely exceeded $1.3 billion in that province alone," says the association. "The federal government needs to meet its commitment to ensure a "level playing field" for honest contractors who file their tax returns and play by the rules."
It says all firms and individuals in the construction industry should be required to register for GST, regardless of whether they operate below the current minimum annual sales threshold of $30,000. It also says that the definition of "substantial renovation" used by the government to determine if a job is eligible for GST rebates must be changed to "expand the range of work that would qualify for rebates... . This will encourage homeowners to engage professional renovation contractors rather than underground operators," says the CHBA.
The Canadian Real Estate Association (CREA) is pushing for changes to the government"s Income Tax Act to encourage real estate investment. CREA is proposing that capital gains taxes on the sale of real property should be deferred if the proceeds of that sale are reinvested in real property within a specific time.
Under the current system, CREA says there"s a "lock-in" effect that discourages reinvestment in real property. "The lock-in effect occurs when holders of old assets with relatively low returns have an incentive to hold on to them for tax reasons," says the association. "This provides a powerful incentive to hold assets with large accumulated gains, even if other assets would be more productive."
CREA says its idea would be "an effective instrument that would appeal to small property owners who have held properties for long periods and who are typically among those unwilling to trigger a tax consequence through a sale." It says upgrades and improvements to a property usually follow a sale, and that more rapid turnover of existing stock would help cities renovate their urban core.
"The CREA proposal is not a request for tax sheltering or tax relief for real estate investors," says the association. "It is a request for the deferral of tax on the sale of a property if certain conditions are met."
The home builders association supports capital gains tax deferrals for rental properties, noting that during the last 20 years, new rental housing investment "has been very weak". It"s calling for several other tax changes to help encourage private investment in new rental construction.