BRIEF OF THE TORONTO REAL ESTATE BOARD

Recommendation

Index the Home Buyers’ Plan (HBP) to the Consumer Price Index (CPI) in $2,500 increments to ensure it never loses its purchasing power.

Rational

·         Inflation steadily erodes the plan’s value: Budget 2009 recognized the need to adjust the HBP for inflation. The limit was raised by $5,000, the first increase since 1992.

·         A creator of jobs and economic growth: In 2009, more than 46,000 homes were purchased using the HBP. This resulted in over $1.9 billion in spin-off spending and more than 16,000 jobs.

·         A gateway to financial security: The HBP has allowed over two million Canadians to save for both retirement and a home without needing to choose one priority over the other.

·         Indexation is an established practice: Tax Free Savings Account (TFSA) limits are indexed to the CPI and rounded to the nearest $500. The HBP should be indexed incrementally as well.

·         No cost until 2015: Using Budget 2009 as a starting point, the plan would adjust by $2,500 in 2015 at a cost of $7.5 million. A further $2,500 increase would occur in 2020.

Recommendation

Allow the deferral of previously written off depreciation (Capital Cost Allowance) on an investment property when owners sell in order to reinvest.

Rational

·         Remove a major reinvestment obstacle: Investors who sell an income property often have insufficient funds after tax to acquire a property of similar value. Consequently, many hold onto properties instead of reinvesting in the community.

·         Level the playing field: Over half of individuals who would benefit from this policy change have incomes below $50,000. Real estate developers get tax advantages unavailable to small real estate investors. This includes the ability to defer tax, and a much lower tax rate, depending on their type of business.

·         Unleash a chain reaction of benefits: Investment in property triggers renovations, retrofits and redevelopment, which accelerates the economy, greens the environment, and revitalizes communities. The average property investment generates $287,850 in economic spin-off activity. In addition, more than one job is created for every two investments.

·         A fiscally prudent approach: This proposal reflects a focus on growing the economy, while being fiscally responsible. Indeed, the cost is offset considerably by the collection of other revenue, including Capital Gains Tax from property sales, and GST/HST and income tax from spin-off activity. All deferred tax is ultimately collected when investors decide not to reinvest or later, through their estates.