Recent Legislative Updates in Canada’s Real Estate Industry

There have been significant real estate tax updates in Canada recently. These Canadian tax legislation updates are important to the industry and represent changes to the landscape that are important for our clients to be aware of.

Below, our Manning Elliott team briefly summarizes these major updates.

Consultation on Accelerated Capital Cost Allowance for Rental Housing Construction

On August 12, 2024, Canada’s Department of Finance announced and initiated a consultation process on newly proposed legislation tied to the priorities announced in the April 2024 federal budget.

One of the key proposals under consideration is the introduction of a 10% accelerated capital cost allowance (CCA), up from 4%, for rental housing construction projects that begin on or after April 16, 2024, and before January 1, 2031.

The proposal includes the stipulation that the rental housing construction projects must be completed by January 1, 2036.

While this proposal is still under consultation, the potential impact on builders and developers is significant. The incentive would provide substantial tax benefits, enabling purpose-built rental projects to defer taxation on net rental incomes.

This measure is expected to encourage the development of much-needed rental housing across Canada, addressing the ongoing housing affordability crisis.

Proposed Exemptions from EIFEL Rules for Rental Housing Providers

In the same consultation process, the Department of Finance is also considering legislative changes related to the Excessive Interest and Financing Expenses Limitation (EIFEL) rules. These changes would potentially exempt purpose-built rental housing providers from the EIFEL rules. 

If implemented, this exemption could alleviate financial burdens on developers, allowing them to focus resources on creating more affordable rental units.

Enhanced GST Rental Rebate for Purpose-Built Rental Housing

On September 14, 2023, the Department of Finance announced a proposal to implement an enhanced 100% GST rental rebate (up from 36%) for purpose-built rental housing. This initiative was initially reaffirmed in the April 2024 federal budget.

The rebate would apply to projects where at least 90% of the units are held for long-term residential rental purposes, with a minimum of four residential units, and construction must begin after September 13, 2023, and before 2031, with substantial completion of the units occurring prior to 2036.

A notable improvement over previous GST rental rebate programs is the removal of the $450,000 fair market value limitation per unit.

This change is particularly beneficial for developers in urban centers with higher property values, ensuring the rebate’s availability to a broader range of projects. This legislation has now received royal assent and was enacted on December 15, 2023.

Introduction of 30-Year Amortizations for First-Time Home Buyers

As part of the latest real estate tax updates, the 2024 budget also includes a significant measure aimed at improving housing affordability for first-time home buyers. Lenders will now be able to offer 30-year amortizations for insured mortgages on new builds.

This change is expected to make purchasing newly constructed homes more accessible to Canadians, particularly those entering the housing market for the first time.

By extending the amortization period, monthly mortgage payments will be reduced, easing the financial strain on new homeowners while still ensuring these mortgages can be insured for lenders.

This change is specific to newly constructed units, so should be of benefit to those in the real estate industry building new condominiums for sale.

Clarification of Trust Reporting Rules & Bare Trust Exemptions

In another key development of the real estate tax updates, the Department of Finance began consultations on August 12, 2024, regarding newly proposed legislation that clarifies the Trust reporting rules, particularly in relation to Bare Trusts.

This follows an administrative exemption granted in 2023 concerning the filing of T3 returns and the disclosure of beneficial ownership information.

The proposed legislation seeks to define and permanently exempt certain Bare Trust and other Trust arrangements from the requirement to file T3 returns.

Specifically, exemptions would apply to:

• Bare Trust situations involving spouses and their principal residence exemption
• Bare Trust arrangements where legal ownership is held pursuant to a court order
• And arrangements where real property is held for the benefit of a partnership, provided the legal owner is a partner of the partnership and the partnership files a T5013 information return annually.

However, under the proposed legislation, it appears that Bare Trust arrangements involving corporations holding property on behalf of other corporate owners are not exempted from the T3 reporting regime.

Enactment of Bill C-69: Amendments to the Underused Housing Tax Act

On June 20, 2024, Bill C-69 received royal assent, enacting significant changes to the Underused Housing Tax Act (UHT). These changes, originally proposed in November 2023, are applicable to the 2023 tax year and beyond.

These real estate tax updates include revisions to the definition of “excluded owner” under the UHT.

Excluded owners are not required to file UHT returns and are exempt from paying the tax. The most notable change expands the list of excluded owners to include trustees of specified Canadian Trusts, specified Canadian corporations, and partners of specified Canadian partnerships.

Additionally, further exclusions have been introduced for condominium rental arrangements where there is a single owner of a building with four or more separately titled rental condominiums.

Previously, each individually titled unit was required to file UHT returns, creating a significant administrative burden. The new amendment alleviates this obligation, reducing unnecessary filing requirements for such property owners.

Conclusion

These recent real estate tax updates represent significant changes in Canada’s real estate industry. Stakeholders in the real estate sector should closely monitor these legislative developments as they move from consultation to potential implementation in the coming months as they’ll materially impact the economics of those that are in the real estate industry.

Still Have Questions About Canada’s Recent Real Estate Tax Updates?

Feel free to contact our Real Estate Practice Group if you need clarification on any of these significant real estate tax updates.

Manning Elliott posts new blogs and up-to-date articles frequently concerning the most recent provincial and federal legislative changes. 

NOTE: Tax laws are complex and are subject to frequent change. The contents of this Manning Elliott article are not intended to represent legal or tax advice. Please consult your tax adviser before employing any strategies that may have been discussed within this article.