Canada’s Federal Election is on October 21st, and each party is in the final days of campaigning for your vote. For people who own investment real estate, this time of year is important to know how the federal election will impact their properties.
We have gone through the Conservative, Liberal and New Democratic Party platforms to see how they impact you. Take a look:
The Conservative Party of Canada
The Conservative Party’s approach has typically been to reduce taxes in order to ensure there is more money in your pocket. The logic being that you know what you need better than the government. This election is no different
Removing GST from Home Energy Bills
One incentive that landlords will use, especially in slow markets, is to include the utilities in the rent. While it may cost them a few hundred dollars more per month, especially in a house, it is often less than leaving a property vacant. This proposal, if passed, could be very good for landlords.
Reviewing the Mortgage Stress Test
In 2018, the Federal Government put in place a stress test on all mortgages. A homebuyer would have to be able to afford a mortgage two points higher than their current interest rate or the average interest rate as calculated by the Bank of Canada, whichever is greater.
This limited the number of people who would be able to qualify for a mortgage, and especially first time homebuyers. It also affected people who wanted to switch their mortgage to a new lender, leaving people locked in at higher rates.
The Conservative Government wants to remove the stress test on pre-existing mortgages, and allow first time home buyers to take out a 30 year mortgage, provided it is insured. The New Democratic Party also wants to allow first time home buyers to take out a 30 year mortgage.
For rental property owners, this is both good and bad news. On the one hand, it would make it easier for landlords to switch their mortgage to whichever institution gives them the best rate, however, it limits the supply of people who are going to rent.
Most Canadians still prefer to buy than rent, and by making buying easier, less people will choose to rent, driving rents down. This particularly impacts rentals in the middle and upper brackets, as those had seen some growth since the stress test was first introduced. However, it likely will not impact the less expensive rentals, as those who rent in those brackets will still be unable to afford to buy a home. Investors who are looking to buy a rental property may want to look at their investment strategy if home ownership is made easier
Green Home Renovation Tax Credit
The Conservative Party also wants to make it easier for people to make their homes more efficient. Capital improvements are expensive, especially for owners of rental properties, but making a home more efficient can save on utility costs and can make a home more desirable for tenants. This tax credit is for 20% of the cost of a renovation between $1,000 and 20,000 that makes your home more efficient. This would include things like efficient heating systems, solar panels, new windows, or other major projects.This would increase the value of a home, and likely make it easier to rent, as it would decrease a tenants utility costs
Liberal Party of Canada
The Liberal Party also understands that home ownership is a major part of The Canadian Dream, and something that directly impacts most people.
Prioritizing Low Income Housing Support
One of the major points that the Liberal Party has talked about is making housing more affordable for Canadians. The majority of their plan revolves around increasing the number of affordable places to live across the country. This includes working with developers to build new low income housing, allocating underutilized Federal land to develop new programs, and working on Housing First initiatives to help people get off the street and into long term homes.
For landlords with properties with lower rents, this increases the pool of potential tenants. Organizations that support people in moving into their own home will likely have more resources to do so. It likely will not impact those working in more expensive brackets as much.
Removing GST On Capital Projects
The Liberal Party, if elected, wants to help the supply of affordable rental units. To do this, they are proposing to remove the GST on capital investments in affordable rentals. While it is unclear as to whether this will apply strictly to new builds or to pre-existing rental properties, this could save owners hundreds of dollars if they choose to upgrade their property. At Amhurst, we find that properties that are more modern rent easier.
The New Democratic Party
The New Democratic Party has a number of suggestions that will directly impact landlords in Canada. Their general approach historically has been to increase taxes in order to increase the number of government services.
Increase Capital Gains Inclusion Rate
For investors, this is a big one. In Canada, investors are taxed for any gain they may have from stocks, property or otherwise once they sell, however they are only taxable on half of what they gained, not the full amount. The NDP want to increase the inclusion rate (how much you are taxed on) from 50% to 75%.
If you bought a home for $300,000 and sold it for $400,000, you made $100,000 on that sale. By current capital gains rules, you are taxable on only $50,000 of that amount at your tax rate. Under the NDPs proposal, you would be taxed on $75,000.
Investors in real estate buy properties to make money off of the rent, and to see some sort of gain upon dispossession. An increase in the capital gains inclusion rate is bad news for the latter point. This would decreases a property’s overall yield, and make investing in real estate a less enticing option. Not only would it drive down housing prices, it would also decrease the rental pool, as investors would be less keen on buying more properties. This could increase rental prices, especially in the middle and upper brackets.
Foreign Buyers Tax
The NDP also want to make it harder for foreigners to buy properties in Canada. This proposal is in place to limit huge changes in price, as has happened in Toronto and Vancouver, but also to limit money laundering. However, it makes it harder for non Canadians who would like to invest in Canada, either buy buying single units or whole buildings, to do so legitimately. By decreasing returns for foreign buyers, it may decrease the purchase price for some properties, particularly in the aforementioned cities, but when these units are used as rental properties, it could decrease the number of rental properties available. This particularly impacts the upper echelons of the rental market.
What does it all come down to?
At the end of the day, a party’s platform is a series of proposals of what they would like to do if elected. None of this is set in stone, or something that they necessarily will do if elected. The real answers of what they will do will become clearer once the government is formed and they release their first budget.
However, a party’s platform is a good indicator of the types of ways in which they would solve problems. The fundamental values under which each policy point is made are often more important than the actual points that they do make. Looking at how they have chosen to solve issues surrounding housing will give a good indicator of what they might do if elected.
Each party has a different vision for Canada, and each differs in key ways on what is best for Canadians and how best to accomplish it. The best thing to do is to become educated on what each party is detailing, and how it will impact you and your family’s lives.
Photo Credit: The Toronto Star