The government of Justin Trudeau pulled back on a threat to hit some real estate investment trusts in Canada with a new tax regime after opposition from the industry. 

The finance department posted a three-sentence statement on its website on May 8, saying that “no changes to the tax treatment of REITs are being considered at this time.” That removes a risk that’s hung over Canadian apartment REITs in particular for more than two years. 

In March 2022, Trudeau — whose Liberal Party does not have a majority of House of Commons seats — struck a power-sharing deal with the opposition New Democratic Party, agreeing to a set of promises in return for NDP votes to help pass legislation. One pledge was to tackle the “financialization of the housing market” — eyeing corporate owners of apartments. 

In the 2021 election, the Liberals had promised to review tax rules and “curb excessive profits” of large owners of residential properties. Under the REIT structure, profits generally flow through to shareholders and are taxed at that level. A change to that — requiring REITs to pay corporate income tax, for example — would likely have made them less attractive to investors, at a time when their valuations are already depressed because of higher interest rates. 

But the real estate industry pushed back, arguing that uncertainty created by the government’s pledge was raising their cost of capital and making it harder for them to develop new housing supply. 

 

“While more needs to be done to ensure that Canadians are not subject to renovictions and that rental units are affordable for Canadians, the government understands that REITs provide a critical channel for new investment in rental units,” said the finance department’s statement, which was reported first by CoStar. 

Renovictions refers to the practice to evicting a tenant to fix up an apartment so that higher rent can be charged.