tax break for new rental housing

Manitoba nixes tax break for new rental housing

Non-profit and private developers had qualified for the incentive
Wednesday, March 21, 2018

Developers of purpose-built rental housing in Manitoba are losing a tax credit that has been available for the past five years. The 2018 provincial budget, released last week, announced the incentive would be cancelled as of January 1, 2019 — a move that is projected to trim about $3.1 million from annual spending.

Approved projects that are not yet constructed will still be eligible for the tax credit of up to 8 per cent of the capital cost of the building or $12,000 per unit provided they are available for occupancy before 2021. To qualify, at least five units must be created in a new building, a conversion of a non-residential building or an expansion of existing rental housing building, and at least 10 per cent of the units must have rents at or below a defined affordable level.

“Any rebate or incentive for the non-profit sector is important,” observes Laurie Socha, president of the Manitoba Non-Profit Housing Association and general manager with S.A.M. (Management) Inc., a property management firm specializing in the subsidized housing sector. “It’s always really tight in terms of capital funding. Tax credits, grants, fee exemptions, low-interest loans — it all just helps in putting these projects together.”

Private developers have also been eligible for the tax break for new rental housing, but they must claim it as a non-refundable credit incrementally over a period of at least five years. Non-profit entities can receive a full tax refund once the project is built and occupied.

Canada Mortgage and Housing Corporation’s (CMHC) fall 2017 survey and analysis notes that in-migration and employment growth have bolstered demand for rental housing. Across Manitoba, 2,125 new units of purpose-built rental housing came onto the market between October 2016 and 2017, including 1,846 private apartments available for rent in the Winnipeg metropolitan area. Nevertheless, the city’s vacancy rate remained steady at 2.8 per cent, while, province-wide, the vacancy rate dropped slightly from 2.8 per cent in October 2016 to 2.7 per cent one year later.

Average rents climbed in the same period. The average rent for a one-bedroom unit in Winnipeg registered $880, up 5.2 per cent from October 2016. The average rent for two-bedroom units rose 3.6 per cent to reach $1,107. Province-wide averages were slightly lower, at $866 for one-bedroom units and $1,067 for two-bedroom units.

Condominium units are housing a growing tenant base with 876 more units becoming available for rent last year. CMHC calculates that nearly 22 per cent of Winnipeg’s condo stock — equating to 3,960 units — is now rented. This condo stock posts a 2.8 per cent vacancy rate to match private apartments, but demands generally higher rents. The average rent for one-bedroom condo units is pegged at $1,084 with average two-bedroom rents at $1,379.

A departmental fact sheet accompanying the newly released Manitoba budget cites an $8.9 million increase above last year’s allocation for “affordable housing support” but that figure is not connected to specific line items in the budget. Renters in the private sector appear to be the main beneficiaries, however. Elsewhere, the budget document states: “Manitoba Housing is maintaining existing capital spending on maintenance and improvement of its social housing stock and new construction.”

Finance Minister Cameron Friesen’s budget speech confirms a $7 million boost to the RentAssist program, which provides low-income recipients with an allowance to cover up to 75 per cent of private sector accommodations at or below the median market rent. The threshold for claiming the full $700 education tax credit on provincial income tax filings has also been lowered to include all renters paying at least $3,500 in annual housing costs. Previously the benchmark was $4,700. This will result in an estimated $100,000 drop in annual provincial revenue.

Other promised tax measures potentially give renters more discretionary income. These include: a two-step increase in the basic personal amount taxpayers can claim as a non-refundable tax credit, bumping it up to $11,402 by 2020; and a future cut in the provincial sales tax, dropping it to 7 per cent in 2020. On the flipside, a new carbon tax taking effect in September 2018 will add a surcharge of 5.32 cents per litre on gasoline and 4.74 cents per cubic metre on natural gas.

Both sales tax savings and carbon tax costs will likewise flow through to landlords. Landlords that qualify as small businesses are also in line for an estimated $6,000 tax saving. An upward adjustment to the small business deduction will exempt them from provincial taxes on the first $500,000 of their net operating revenue. Previously, the exemption applied to $450,000 of net earnings.

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