The Commons Human Resources committee this week rejected a proposed $54 million per year tax on real estate investment trusts (REITs).Critics, including the cabinet's Housing Advocate, have attributed the "financialization of housing" to the existing tax breaks, according to Blacklock’s Reporter.“The committee is aware the federal government has committed to review the tax treatment of real estate investment trusts,” the committee wrote in a report Financialization of Housing. It recommended only that the cabinet “examine the social and economic costs and benefits of the current tax treatment.”According to official estimates, REITs manage approximately 20% of Canada's purpose-built apartments in the private sector.Trusts, similar to mutual funds, are not subject to taxes on the profits they distribute to their shareholders.In a 2021 Ministerial Mandate letter, the cabinet proposed the cabinet “consider possible reforms to the tax treatment of real estate investment trusts.” New Democrats on Thursday in a Dissenting Report complained the committee majority “recommended little to no definitive action.” Records show 11 MPs hold shares in real estate trusts.According to the Budget Office, its April 3 report Cost of Removing Tax Exemptions for Real Estate Investment Trusts, with the exemptions in place since 2011, would generate $53.6 million this year and $55.3 million next year.As reported, the tax breaks over a five-year period were valued at $285.8 million.“Real estate investment trusts invest in income-producing real estate,” wrote the Budget Office. “They buy, hold, maintain, improve, lease and manage properties using money from investors and distribute income generated to the investors as dividends. Trusts offer to the investors the opportunity to invest in real estate without the risk of owning investment properties or the need to manage them.”“Real estate investment trusts are allowed to flow through their income to unit holders and pay taxes only on the non-distributed portion of their income,” said the report. “These tax advantages have benefited trust investors, particularly non-resident investors and non-taxable Canadian investors.”The Budget Office highlighted the “spectacular growth” of the sector, dating back to 1993.“Total trust assets grew from $80 million in 1993 to $76 billion in 2021 and the number of rental suites in apartment buildings owned by trusts increased from zero in 1996 to nearly 200,000 in 2021,” wrote analysts.Federal Housing Advocate Marie Josée Houle, in a September 13 Observational Report, said Parliament should “ban real estate investment trusts” she blamed for rising rents. “Financialization is a root problem driving unaffordability,” wrote Houle. “Financialization is a term used to describe how changes in the global economy have increasingly made housing a focus of speculative, often short-term investment.”
