IN THIS ISSUE...
Page 35: The proposed federal corporate tax changes will likely affect some corporate landlords. Other landlords will not be affected.
Page 38: Some tenants will be disturbed by others growing or smoking marijuana in their apartments, but the solutions will have to come from the provinces, with their control of landlord and tenant law.
Page 41: CFAA Rental Housing Conference 2018 will take place in Vancouver during the week of May 14. Learn more!
NATIONAL OUTLOOK – DIGITAL EDITION available at www.cfaa-fcapi.org
CFAA Member Associations Eastern Ontario Landlord Organization (EOLO) www.eolo.ca P: 613-235-9792 Federation of Rental-housing Providers of Ontario (FRPO) www.frpo.org P: 416-385-1100, 1-877-688-1960 Greater Toronto Apartment Association (GTAA) www.gtaaonline.com P: 416-385-3435 Hamilton & District Apartment Association (HDAA) www.hamiltonapartmentassociation.ca P: 905-632-4435
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Investment Property Owners Association of Nova Scotia (IPOANS) www.ipoans.ns.ca P: 902-425-3572
Manufactured Home Park Owners Alliance of British Columbia (MHPOA) www.mhpo.com P: 1-877-222-4560
LandlordBC www.landlordbc.ca P: 1-604-733-9440 Vancouver Office P: 604.733.9440 Victoria Office P: 250-382-6324
Professional Property Managers’ Association (of Manitoba) (PPMA) www.ppmamanitoba.com P: 204-957-1224
London Property Management Association (LPMA) www.lpma.ca P: 519-672-6999
The Canadian Federation of Apartment Associations represents the owners and managers of close to one million residential rental suites in Canada, through 11 apartment associations and direct landlord memberships across Canada. CFAA is the sole national organization representing the interests of Canada’s $480 billion rental housing industry. For more information about CFAA itself, see www.cfaa-fcapi.org or telephone 613-235-0101.
Saskatchewan Landlord Association Inc. (SKLA) www.skla.ca P: 306-653-7149 Waterloo Regional Apartment Management Association (WRAMA) www.wrama.com P: 519-748-0703
The proposed federal corporate TAX changes The proposed federal corporate tax changes only apply to people who receive income as dividends derived from private corporations, or who hold real estate through corporations.
“There are apparently no plans to affect people who hold real estate in their own name (or with their spouse), or public companies or REITs. Investors who currently pay tax at the top personal rate on passive income should also not be affected.” The proposed changes would not immediately end the use of family trusts to achieve income splitting. However, if the proposed corporate tax changes are adopted, then a reform of the rules on family trusts could follow. The government consultation paper is called “Tax Planning Using Private Corporations”: A Google search of that name will pull it up. The consultation on the proposed reforms closed on October 2, but the lobbying around the reforms will certainly continue after Oct 2, and probably right up to when the 2018 Budget is decided (usually in February.) In the Financial Post, Jack Mintz wrote two helpful articles on the unfairness of the proposed tax reforms, one on Sept 6, and one on Sept 20.
Some basic facts on the two key reforms are set out below. Member associations and landlords are invited to check CFAA’s website for the latest information, and are invited to email firstname.lastname@example.org with their issues and concerns. Please also send us any letter of submission you send to the Minister of Finance, the Department of Finance or the government on the tax issue.
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SEPT/OCT 2017 Type of Income
Combined Tax Rate Federal & Provincial – on average
1. active business income up to the small business limit ($500,000 federal limit)
For landlords, this rate is only available for the income that results from management activities or fees.
Includes rental income earned by corporate rental housing providers with more than 5 full-time employees
Includes rental income of corporations and rental housing businesses with fewer than 6 full-time employees
This tax is refundable when the dividends are paid out, since they are then taxed in the hands of the payees.
2. active business income in excess of the small business limit
3. Passive income
4. Portfolio dividend income
TOP PERSONAL TAX RATE
Income sprinkling (also called income splitting) Current regime – with the right corporate set-up, some business income can be directed to a spouse or adult children (who have low incomes), thus reducing the total tax paid by a family. (That typically works best with active business income, but it can work with rental income.) Proposed regime – preventing income sprinkling by tests of reasonableness of the payouts compared to the capital and work contributed to the business. See govt consultation paper at pages 18 – 28. Issues and implications – this is an area on which the doctors and other professionals are up in arms. It may affect relatively few landlords as landlords. Those affected have created Canadian controlled private corporations (“CCPCs”) to collect a management fee, thus turning some rental income (which would usually be passive income) into active business income to gain the small business rate. This area would also affect many mid-size landlords who achieve active business status for their rental income by having more than 5 full time employees. The consultation
Or slightly higher in some provinces
paper says the government expects to gain $250M of tax revenue per year by stopping income sprinkling. (That seems low to some observers.) This reform is the issue that has generated most of the political backlash.
Taxing passive income earned within a corporation Current regime – corporations which earn income typically do one or two or three things with the income: namely, reinvest it into the business, distribute it (as dividends or salary), or invest it in other businesses or investments. Some of those investments produce passive income: e.g. real estate. That passive income is taxed at the high rates, but the objection is that the active income that went into the investment was taxed at lower rates, and that gives those owners an advantage over other people who paid tax on their incomes at the higher rates. Proposed regime – increase the tax rate on such “second generation” income above normal rates, potentially to 73%. The stated goal is to be fair between income which received the favourable rentalhousingbusiness.ca | 37
SEPT/OCT 2017 rates, and income which did not. The government proposes a tracking system (which would likely be an accounting nightmare.) For more details, see govt consultation paper at pages 32 – 53. Apparently, for pure holding companies (which did not receive tax-preferred income) no increases will apply, and they will be able to avoid the tracking system. That would save many people who hold rental property through corporations from being negatively affected by the proposed reforms. Implications – While not in keeping with the government’s stated goals, the higher taxes could accidentally apply to the “second generation income” of landlords who receive the active business tax rate on rental income (because of having more than five full time employees.) That could affect a great many mid-size landlords to a large extent. Reports say the government is looking to gain $1B to $2B of tax revenue per year by taxing passive income in corporations.
That is almost certainly the largest part of these proposed reforms, but it is a part that has generated little political backlash so far.
CFAA’s actions CFAA has taken action on the proposed tax reforms. That includes consultation with landlords who will be affected if the proposed changes are enacted, and submissions to the federal government, which are available at www.cfaa-fcapi.org. As this issue goes to press, the government has announced several changes in direction for the proposed tax reforms, primarily to ensure that smaller private corporations are not much affected, or benefit. Many of the details have still not been released. CFAA will be evaluating the details of the proposals and pushing for new rules which impose the least possible negative effect on landlords.
Marijuana update On September 13, CFAA President John Dickie appeared before the House of Commons Standing Committee on Health to address marijuana legalization. While the committee recognizes that some tenants will be disturbed by tenants who are smoking or cultivating marijuana in their apartments, it is clear that any solutions to that problem are going to have to come from the provinces. For example, Quebec may intend to prohibit home growing entirely. At the committee, CFAA made the following points •
Smoking marijuana should be banned anywhere that smoking tobacco is banned. In addition, landlords should be able to ban the smoking of tobacco or the smoking of marijuana.
– Safety hazards due to electrical
overloading, and excess humidity – Interference with other tenants through
strong odours – Potential liability for the landlord and
risk to the tenants and mortgage holder – Potential cancellation of building
insurance or the calling of a mortgage with financially disastrous results for an innocent building owner. Failing a prohibition on home growing, there should be a system which requires the landlord’s consent for home growing.
In the limited situations where marijuana is legitimately prescribed for medical use, ingested marijuana may offer all of the benefits without any of the negative impact on other tenants.
There should be volume restriction on the plant growth area to prevent growers from using use a screen of green (SCROG) technique to produce lots of marijuana from four plants. Current leases do not prohibit marijuana smoking or growing, simply because it is against the law now.
Growing marijuana in multi-unit or rented dwellings is more problematic than marijuana smoking. Concerns include:
The current regime prohibits smoking and growing, and especially in Ontario and Quebec, landlords will only be able to impose those
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NATIONAL OUTLOOK terms themselves when they enter into new leases with new tenants. Existing tenants would effectively be grandfathered to grow and smoke, which would be against the interest of the majority of tenants.
the committee hearing, CFAA President John Dickie spoke with him and he assured CFAA that the provinces are working on the changes they need to make to landlord and tenant laws to deal with the situation. Mr. Blair said that in most provinces it is the Justice Department that has carriage of the file. According to Mr. Blair, Ontario addressed the age limit and distribution issues first as they are more time critical, but he expects the province to deal with landlord and tenant issues in the next few months.
Submissions from other presenters The previous day, witnesses included government representatives from Colorado and Washington State, who said the sky had not fallen with legalization. Another witness was John Conroy, a lawyer who has been instrumental in the fight to legalize marijuana for medical purposes. He said that the most common complaint received about medical growing now is about odours. He added, most users want to buy their pot in a store, not to wait for it to be delivered, and not to grow it themselves. Dr. Page, a plant scientist, suggested that the proposed height limit of one meter be abandoned, and that the limit of four plants per dwelling be increased to somewhere between six and ten plants to allow for the fact that some of the plants produced from seeds are male plants and do not produce useable pot, and plants would necessarily be at different stages of their life cycle as they grow. (The government appears to plan to eliminate the one meter height limit, but not to allow more plants.)
Provincial and municipal implications The landlord-tenant issues will need to be addressed by the provinces. Bill Blair, a former Toronto Police Chief, is the Parliamentary Secretary to the Minister of Justice. He has carriage of the marijuana legalization file. After
At the moment in Ontario, the problems are going to be worse than with tobacco because people are not going to be allowed to smoke pot outside or in pot lounges (like bars, but for pot), forcing them to smoke in their homes (and apartments). Landlords may want to promote freedom for people to smoke pot outside or in pot lounges because that will give users a place to smoke pot other than in their apartments. As well, because Ontario is banning privately run pot shops, and opening only a limited number of pot stores, people will want to grow their own. Instead, in Quebec, the provincial government apparently intends to ban home growing. The Saskatchewan government has told the Saskatchewan Landlord Association that its current plan is to ban growing in multiple-dwelling buildings, and permit it in detached rented premises only with the consent of the landlord. Landlords and CFAA-member associations can use those examples in their provincial lobbying efforts. Further regulations may come from the municipalities since they can restrict where certain activities take place within the municipality. For example, a municipality could prohibit growing pot in multiple-unit dwellings. That would enable a landlord to proceed against a tenant for an illegal act, rather than for substantial interference with the reasonable enjoyment of other tenants. In Ontario and other provinces, that would facilitate the enforcement of a non-growing rule. The government appears to plan to eliminate the one meter height limit... rentalhousingbusiness.ca | 39
CFAA Suppliers Council
CFAA would like to thank all of its Supplier Council members for their continued support.
If you would like to join CFAAâ€™s Supplier Council, email email@example.com for more information. 40 | oct 2017 40 | j u ly /au g 2 01 7
CFAA Rental Housing Conference 2018 in Vancouver The Canadian Federation of Apartment Associations looks forward to returning to Vancouver for CFAA Rental Housing Conference 2018 at the Coast Coal Harbour Hotel in downtown Vancouver from May 14 to May 16. Join us for the sunny Spring season in Vancouver. Enjoy nearby Stanley Park or English Bay, or take in the rich culinary offerings and nightlife of Granville Street, Yaletown, Gastown or Granville Island. Turn your business trip into a vacation by enjoying the museums and gardens of Vancouver, or by exploring the mountains of North Vancouver. A little further afield, drive to Whistler for spectacular views and recreation, or drive to Harrison Hot Springs to relax in their famous spa. Only a short ferry ride away are Victoria and the world-renowned Butchart Gardens, on scenic Vancouver Island. Or visit the wineries of the sunny Okanagan Valley.
During the afternoon of May 16, CFAA and Landlord BC will offer sessions of particular interest to rental owners and operators in BC. Sessions will cover topics such as apartment sales, the new health and safety requirements, the BC political scene, and the BC marijuana regime. Rental owners and operators will be able to attend the afternoon (after lunch) at an economical registration rate.
For more information Follow www.CFAA-RHC.ca, or email events@cfaa-fcapi. org to sign up to receive more conference details and CFAA’s electronic newsletter. Rental industry suppliers are invited to contact firstname.lastname@example.org to receive information about sponsoring or exhibiting at the conference, on one, two or all three days.
Conference program CFAA-RHC 2018 will start on Monday, May 14, with an afternoon building tour of the Bridgewater, the Hollyburn property which won CFAA’s award for New Development of the Year in June 2017. Located in North Vancouver, the Bridgewater features a rooftop terrace with a fire pit and community gardens, and a resident lounge with fireplace and kitchen. There is bicycle parking, a gym, and electric vehicle charging stalls. In-suite amenities include washer/dryer, and a second full bath in 2BR units. A second building for the tour is to be determined. The Welcome Reception will follow. On Tuesday, May 15, CFAA will kick off with a keynote speaker, the Executive Roundtable and the Suppliers Council Showcase. The afternoon will see a choice of topics relevant to landlords from across Canada, including panel discussions and presentations. From 4:30 to 6:00 we will enjoy the Networking Reception, leading up to the CFAA Awards Dinner. Be the first to learn who has won CFAA’s 2018 Rental Housing Awards for rental housing personnel, suppliers and new or renovated buildings! (For more details about CFAA’s 2018 Awards Program, e-mail email@example.com.) The morning of Wednesday, May 16, will feature another keynote speaker and a choice of several sessions about national issues, such as the corporate tax reforms and marijuana legalization across Canada.
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Published on Nov 8, 2017