Housing was a key focus for Canadians in 2022. This is one of the most complex public challenges in the country right now, as housing, real estate and construction involves municipal, provincial and federal governments.
Many in the industry hoped changes in the 2022 federal budget would address challenges around supply chain and rising costs. While there is much to do to address the challenges faced by the Canadian construction sector, Budget 2022 did offer some relief.
Business tax measures
Among the business-related tax measures announced in the budget was the change to the small business deduction to include companies with higher capital balances. This change is a positive one for medium-sized businesses, as they may be able to now access the reduced corporate tax rate. Unfortunately, given that there is still a limit on this due to investment income, this change may not extend to capital intensive businesses like real estate, construction or manufacturing.
As a significant number of construction companies are family owned, it was good to see there were no changes to current tax rules around intergenerational business transfers. Changes introduced through Bill C-208 in mid-2021 allowed parents to succeed their businesses to their children in a tax effective manner. The 2022 budget announced a consultation period relating to this legislation, but did indicate the government would keep the legislation in place for legitimate business successions.
Budget 2022 also indicated the federal government will conduct a review of housing as an asset class in corporations as there is a perception corporate ownership is driving up rents and house prices. While the results of such a review remain to be seen, the direction of this change could mean corporations that invest in real estate could be penalized in some fashion.
“Governments all need to work together to develop policies that drive affordability in the construction of new supply, the retrofitting and renovation of existing supply.”
A number of personal tax measures announced will positively impact the construction sector.
You may see an increase in renovation activity due to the multi-generational home renovation tax credit and home accessibility tax credits. They are intended to offset some of the costs for renovations made to homes for the elderly, and those living with disabilities. However, the uptick might not be seen right away, given it requires a second suite addition, and municipalities will have to change zoning to allow it.
Another indirect support to construction businesses is a travel and relocation tax deduction announced for tradespeople and apprentices. Budget 2022 acknowledged skilled trade workers are essential and in short supply, and they need to get to a job site no matter where that is. To address this, the government introduced a new personal tax deduction of up to $4,000 a year in eligible travel and relocation expenses. Managers should make sure workers and prospective hires are aware of the available tax savings.
GST/HST on assignment sales
Budget 2022 proposed to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/ HST purposes. This has historically been a grey area as to whether it was taxable, so the government is clarifying that it is, in fact, taxable. The ultimate purchaser ends up paying tax on the full cost of the build and the assignment sale.
While the noted credits may provide some relief from increased costs for individuals, the measures don’t address some of the causes of the costs being so high in the first place, such as development and regulatory burdens, and supply chain issues.
Although it is evident the government clearly recognizes the current challenges, long-term solutions for the construction sector will require the federal government to work with provinces, territories and municipalities to ensure the sector fulfils its potential.
Governments all need to work together to develop policies that drive affordability in the construction of new supply, the retrofitting and renovation of existing supply, to ultimately foster greater economic accessibility for those aspiring to purchase a home.
MNP recently hosted a webinar for CHBA providing a detailed discussion on how Budget 2022 affects the real estate and construction sector. Members can view the recording at chba.ca/webinars.
For more information, contact Melissa Aveiro, CPA, CA, South Western Ontario Regional Tax Leader, and National Real Estate and Construction Tax Leader, at 519.286.1807 or firstname.lastname@example.org