Ending Tax Exemptions for Real Estate Investment Trusts Would Save Government Nearly $286M: PBO

A for sale is sign is displayed in front of a house in the Riverdale area of Toronto on Sept. 29, 2021. (The Canadian Press/Evan Buhler)

A report by the Parliamentary Budget Officer (PBO) estimates that the federal government could collect nearly $286 million in additional tax revenues over the next five years if it cuts tax exemptions currently granted to Real Estate Investment Trusts (REITs) and instead brings them under the statutory corporate income tax rate.

“We estimate that the federal government would collect $285.8 million additional revenues over the 2023 to 2027 tax years,” says the report, published on April 3 and titled “Cost of removing the tax exemptions for Real Estate Investment Trusts,” as first reported by Blacklock’s Reporter.

The statutory corporate income tax rate is currently 38 percent, but REITs are exempt under Canadian legislation if they meet certain revenue and property conditions.

The PBO writes that REITs have become increasingly popular since the legislative change in 2011 bringing the tax exemption into place.

“The number of REITs increased steadily in the first decade of the century and jumped further from 15 in 2010 to 110 in 2021,” which equals an average annual increase of just under 20 percent, the report says.

The PBO also says taxing REITs would equate to $95.5 million over the next five years in additional taxes collected “indirectly on income distributed to non-residents” and another $242.6 million on “income distributed to non-taxable residents.”

However, subtracted from that amount would be just over $52 million in tax revenue collected “directly and indirectly on income distributed to taxable residents,” bringing the total amount to just under $286 million.

If the tax exemptions on REITs were to be removed this year, the PBO estimates annual additional revenues for Ottawa would increase slightly year-by-year, going from $53.6 million this year to just under $61 million by 2027. Estimates for years beyond 2027 were not provided.

Real Estate Investment Trusts

The PBO’s estimates of how much additional tax revenue Ottawa can bring in by cutting exemptions for REITs were requested by Green Party MP Mike Morrice, who has said in the House of Commons that REITs are contributing to sky-high real estate and housing rental prices across Canada.

Morrice introduced a petition in the Commons in December 2022 that called on the government to introduce a number of measures regarding the issue, including bringing in tightened regulations for REITs.

“Private corporations and real estate investment trusts are rapidly buying up affordable units across the country and raising rents,” he said. “This financialization of the housing market is inflating real estate prices.”

Morrice is the sponsor of Motion 71, titled “Affordable Housing Strategy,” which he placed on notice in the Commons in September 2022.

The motion calls on the government to remove tax exemptions for REITs and subject them to the standard corporate income tax rate.

It also calls for the government to use any additional tax revenue generated from removing the exemptions to “invest in quality, affordable, and dignified non-profit and cooperative housing.”

Morrice told Blacklock’s that REITs “are not in housing for what they can contribute, they’re in it for what they can take out. At the very least, they should be taxed fairly.”