OTTAWA – Tax policy discourages the sale of income property and impedes a chain reaction of economic stimulus and job creation – elements that could greatly contribute to a commercial real estate market recovery and community redevelopment. A new Altus Group economic study prepared for The Canadian Real Estate Association (CREA) found that income property sales generate sizeable economic activity in a number of industries, and support job creation.
The study estimates, between 2006 and 2008, the typical multi-unit residential income property transaction in the Greater Toronto Area, Greater Calgary Area and Greater Vancouver Area generated a total of $287,850 in ancillary spending. It also found that 53 jobs were created for every 100 transactions.
“Income property sales generate a substantial amount of spin-off spending,” says Peter Norman, Senior Director, Altus Group. “They create opportunities for trades people in renovations and repairs; fees for professionals; income for industries that produce construction materials; and tax revenue for all levels of government.”
Unfortunately, many income property owners are reluctant to sell and reinvest because of the capital gains tax and recaptured capital cost allowance.
“The tax system provides a powerful incentive to retain income properties with large accumulated gains at the expense of more productive opportunities,” explains James McKellar of York University’s Schulich School of Business. “The consequences are underutilized, energy-inefficient and boarded up buildings across the country. It restricts work opportunities in redevelopment and impedes creation of additional rental housing in built-up areas.”
“The tax system encourages us to hold onto our property,” according to George Kirkland Jr., an owner of a multi-unit residential property in St. John’s Newfoundland. “After paying the tax, we would not have enough money left to purchase a similarly valued property and realize the same level of income.”
The commercial real estate market deteriorated significantly in 2008, as a result of the global recession, and has yet to show signs of recovery. A recent report by CB Richard Ellis Limited illustrates commercial real estate market transaction volumes declined by 51 percent, year-over-year, from $10 billion midway through 2008 to $4.9 billion midway through 2009. In the first half of 2009, the number of commercial real estate transactions also decreased sharply year-over-year, dropping 38 per cent to 1,569 at mid-year 2009 from 2,542 transactions at mid-year 2008.
“Allowing tax deferral on income property reinvestment would provide a needed kick-start for the ailing commercial real estate market,” says CREA President Dale Ripplinger. “The spin-off activity from income property sales would help strengthen other sectors hard-hit by the economic downturn, and the resulting renovations and redevelopment would help revitalize communities across the country.”
There is widespread support for allowing tax deferral on income property reinvestment, including the National Trade Contractors Coalition of Canada, the Canadian Construction Association, the Canadian Federation of Apartment Associations and REALpac – the Real Property Association of Canada.
The complete study from Altus Group Economic Consulting is available in PDF format at www.crea.ca or by sending an email to info@crea.ca.
About The Canadian Real Estate Association
The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 96,000 real estate Brokers/agents and salespeople working through more than 100 real estate Boards and Associations.
Registrants in any province who become members of organized real estate have an obligation to act in accordance with the REALTOR® Code. This Code outlines the accepted standard of conduct for all real estate practitioners who are members of a real estate Board or a Provincial Association.
CREA owns the MLS® and REALTOR® trademarks, which signify a high standard
of service and identify members of CREA.
For further information, please contact:
Alyson Fair
Publicist, The Canadian Real Estate Association
613-237-7111 ext 2284
afair@crea.ca
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