Canadian Government Abandons Proposed Tax Overhaul for REITs amid Industry Opposition

After facing opposition from the real estate industry, the Canadian government led by Justin Trudeau has withdrawn its plan to impose a new tax regime on certain real estate investment trusts (REITs). This move follows the Liberal Party’s agreement with the opposition New Democratic Party in March 2022 to address the “financialization of the housing market” by targeting large corporate owners of apartments. In the 2021 elections, the Liberals had also pledged to review tax rules to curtail excessive profits of major residential property holders. However, under the REIT structure, profits typically flow through to shareholders and are taxed at that level. Modifications to this system, such as requiring REITs to pay corporate income tax, could potentially decrease investor appeal during a period of elevated interest rates. The real estate sector argued that the proposed tax regime created uncertainty, increasing the cost of capital and making it challenging to build new rental properties. The finance department announced on May 8 that there were no plans to alter the tax treatment of REITs at present.