The Canadian Real Estate Association’s Political Action Committee (PAC) Days draws REALTORS® and association executives from across the country to Ottawa to meet their local MP on issues important to the real estate industry. 2013 PAC Days were held April 29 and 30, 2013.
This year, your PAC representatives spoke to MPs about the following issues:
Indexation of the Home Buyers’ Plan
The Home Buyers’ Plan (HBP) is a federal program that makes getting a first home easier. Under the HBP, anyone can withdraw money from their RRSP to help purchase or build a qualifying first home, either for themselves or a disabled relative.
The HBP’s withdrawal limit is set at $25,000. Unfortunately, inflation erodes the plan’s buying power, thus reducing the ability of Canadians to afford their first home. This wouldn’t be an issue, however, if the HBP were indexed to the Consumer Price Index (CPI).
CREA’s Proposal
CREA would like the federal government to index the HBP to the Consumer Price Index (CPI) in $2,500 increments. This will ensure that first-time homebuyers never lose their purchasing power. There’s no cost to the government until 2015, at which point the cost would be minimal.
The Benefits of the Proposal
1. Economic Spinoffs
According to Altus Group, each MLSÒ home sale or purchase generates an average of $42,350 in ancillary spending. This includes renovations, furniture and appliances, professional services, moving costs, and tax revenue to government. In 2010, more than 58,000 homes were purchased using the HBP, resulting in over $2.4 billion in spin-off spending and over 20,000 jobs.
2. Follows Established Practice
A number of other government programs are indexed to ensure they do not lose their intended value, including retirement benefits, Registered Retirement Savings Plans, and Tax Free Savings Accounts. Tax Free Savings Accounts are indexed to the Consumer Price Index and rounded to the nearest $500. The HBP should be indexed in a similar way.
3. Zero Cost Until 2015
Using Budget 2009 as a starting point, indexing the HBP in $2,500 increments would enable the government to meet its deficit reduction targets and other planning objectives. This approach would cost nothing until 2015, at which time the plan would adjust by $2,500 at a cost of $7.5 million. A further $2,500 increase would occur in 2019 at an additional cost of $7.5 million. This costing is based on estimates contained in Budget 2009 and 2010.
Homeowners and Life Changes
Eligibility for the Home Buyers’ Plan (HBP) is limited to first-time homebuyers, individuals requiring new housing as a result of becoming disabled and those who have been out of the housing market for more than five years. However, other significant life changes can trigger a move and impact an individual’s ability to purchase another home that accommodates their circumstance.
CREA’s Proposal
CREA would like the federal government to allow the use of the HBP after job relocation, the death of a spouse or a marital breakdown.
1. Labour Mobility
Jobs are the foundation of a strong economy. At a time when the government is looking to fuel job growth, the price of housing need not serve as a barrier to job relocation. The HBP can encourage labour mobility by easing affordability concerns.
2. Strengthen a Critical Principal
The HBP already allows for use on more than one occasion as a result of a major life change. Individuals requiring new housing as a result of becoming disabled can use the HBP, as can those who have been out of the housing market for more than five years.
3. Fiscally Conscious
The HBP allows Canadians to borrow from their savings. Unlike a costly tax credit, the HBP effectively amounts to a zero-interest self-loan. Furthermore, the HBP is not a cost unto itself. Costs are attributable to Canadians contributing more to their RRSPs in the year of a home purchase in order to take advantage of the HBP.
Community Reinvestment
Using Capital Cost Allowance (CCA), income property owners can write off a fixed percentage of the original cost of a building and its component parts each tax year, typically up to four per cent of the un-depreciated balance can be claimed against net rental income each year.
However, under the current system each property is treated separately for CCA purposes. When an owner sells a property, s/he’s required to pay taxes on the CCA previously claimed. This often leaves an owner with insufficient funds to acquire another property of similar value. Consequently, many owners hold on to properties rather than sell and reinvest.
By limiting reinvestment in new properties, the current system also limits reinvestment in communities. For example, Altus Group found a typical multi-unit income property transaction in Toronto, Vancouver or Calgary generates $287,850 in spin-off spending. This includes renovations, repairs, professional fees, and revenue for all levels of government.
CREA’s Proposal to Increase Community Reinvestment
CREA wants to encourage reinvestment in our communities. To this end, we’re recommending that property owners be able to defer the recapture of CCA. Specifically, for CCA purposes all of an owner’s properties would be pooled: buying a property increases the total amount that can be depreciated; selling reduces the amount.
The end result is that fewer owners would hold on to properties to avoid CCA recapture; they’d instead have a strong incentive to sell and then reinvest in other properties.
The Benefits of Our Proposal
1. Community Revitalization
Investment in property triggers renovations, retrofits and redevelopment because owners want to improve their property to attract new tenants and reduce operating costs. The economy, environment and community all benefit.
2. Leveled Playing Field
Over half of those who would benefit from our proposal have incomes below $50,000. Real estate developers get tax advantages unavailable to small real estate investors. This proposal helps level the playing field between large and small real estate investors.
3. Economic Acceleration
Industries still recovering from the global economic recession would be able to create jobs and generate economic growth. As mentioned previously, Altus Group found a typical multi-unit income property transaction in Toronto, Vancouver or Calgary generates $287,850 in spin-off spending. Its research also estimates every two transactions create more than one job.
4. Fiscally Prudent
The cost of the proposal would be offset by higher revenue from other sources. By encouraging property sales and reinvestments, the proposal would generate more revenue from Capital Gains Tax, GST/HST and income tax from spin-off activity.
This information is taken from the REALTOR Action Network website. Visit the REALTOR® Action Network for information about these and other issues CREA has identified as significant for the real estate industry.