Federal budget supports National Housing Strategy & CMHC loans for rental housing construction

On Tuesday, February 27, federal Finance Minister Bill Morneau tabled the Liberal government’s third federal budget. Titled “Equality + Growth: A Strong Middle Class,” the 369-page document offers a variety of announcements to:

  • address the gender wage gap, support equal parenting, tackle gender-based violence and sexual harassment, and introduce a new entrepreneurship strategy for women
  • improve access to the Canada Child Benefit and introduce the Canada Workers Benefit, a stronger and more accessible benefit that will replace the Working Income Tax Benefit
  • provide funding to increase opportunities for young researchers and provide them with the equipment they need, while strengthening support for entrepreneurs to innovate, scale up, and reach global markets
  • help to close the gap between the quality of life of Indigenous and non-Indigenous people, provide greater support to keep First Nations children safe and supported within their communities, accelerate progress on clean drinking water, housing, and employment, and support recognition of rights and self determination
  • put a price on carbon pollution across Canada and extend support for clean energy projects
  • partner with provinces and territories to address the opioid crisis, advance national pharmacare, and support for Canada’s official languages

On the issue of housing, the federal government included new investments in Budget 2018 to support the National Housing Strategy and CMHC’s Rental Construction Financing Initiative, but did not introduce any new measures to moderate housing markets or address consumer debt.

National Housing Strategy

More than $40 billion will be invested over 10 years to create over 100,000 new housing units and repair 300,000 housing units. The federal government expects this would help 530,000 households, meaning 435,000 will benefit from the maintenance and expansion of community housing in Canada. As well, it is estimated that the number of chronically homeless shelter users will be reduced by 50 per cent.

At least 25 per cent of the National Housing Strategy investments will support projects which target the unique needs of women and girls, including senior women who are more likely than senior men to need affordable housing.

The National Housing Co-Investment Fund under the National Housing Strategy commits to building and renewing shelter spaces for survivors fleeing family violence, reducing the wait list for shelter spaces and lowering the number of women who might otherwise risk returning to an unsafe relationship or the 7,000 shelter spaces for survivors of family violence.

There will be further federal investments to improve the quality of life of indigenous people, including the repair and construction of housing units in First Nations, Inuit and Metis Nation communities to reduce overcrowding and housing in disrepair.

Additional funding for CMHC’s Rental Construction Financing Initiative

The Canada Mortgage and Housing Corporation (CMHC) launched a Rental Construction Financing Initiative in April 2017 to provide low cost loans to municipalities, private developers and builders and non-profit housing providers to support the construction of new rental housing. Eligible construction projects include sustainable apartments. Niche housing types such as retirement homes, single room occupancy, student housing and equity co-ops, or supportive hosing or housing with tenancy restrictions are not supported by the program.

A total of $2.5 billion was made available between 2017 and 2021. To be eligible, borrowers need to show that their projects are financially viable without ongoing operating subsidies. The Initiative prioritizes projects which demonstrate greater social outcomes and may offer a loan for up to 100 per cent of the cost of these projects. Borrowers must meet minimum requirements for affordability, energy efficiency and accessibility. Lower cost loans are provided for terms of up to 10 years, making costs more predictable during the earliest and most challenging phases of development.

The federal budget proposes to increase the amount of loans available through the CMHC Initiative from $2.5 billion to $3.75 billion over the next three years. This new funding is intended to support projects which address the needs of modest and middle income households struggling in expensive housing markets. This measure is expected to spur the construction of more than 14,000 new rental units across Canada.

No new announcements related to changes in mortgage rules

The federal government acknowledged in Budget 2018 that following rapid growth in prices and sales in recent years, housing market conditions have become more balanced in Toronto and Vancouver and their surrounding regions.

In the government’s view, “Going forward, housing demand across the country should continue to be supported by solid job and income gains, but tempered by rising interest rates and recent changes to mortgage underwriting Guideline B-20 for federally-regulated lenders (including a mortgage rate stress test for uninsured mortgages).”

Information on the taxation of private corporations from CREA:

In July 2017, Finance Minister Bill Morneau had announced changes to the tax system for private corporations. CREA responded by highlighting concerns about the proposed rules and the negative impact on small businesses. In CREA’s view, the federal government has responded positively to the profession’s concerns. Budget 2018 includes two measures to limit tax deferral advantages by business owners:

  1. Business owners will be allowed to earn investment income in their corporation up to $50,000 annually.  If a corporation earns more than $50,000 of passive investment income per year, the amount eligible for the small business tax rate would be reduced dollar for dollar.  In other words, passive investment income over the threshold will not be taxed as proposed last July but will reduce the business limit for eligibility to the small business deduction which is $500,000 of active business earning annually.
  2. The second measure would prevent small business corporations from obtaining a refund on taxes paid on investment income.  Investment income is taxed at a higher rate compared to active business income.  Presently larger corporations pay out dividends from their active income which is taxed at a lower rate and still claim a refund of taxes paid on their investment income which is intended to be taxed at a higher rate.  This represents a significant tax advantage.  The proposal will require a corporation to pay out dividends from its refundable dividend tax on hand account that entitles the shareholder to the lower dividend tax credit (ie:  ineligible dividend) before it can pay out dividends from its eligible dividend account which is from active business earnings.

The emphasis of these measures is to allow business owners to invest and support their business rather than benefit from personal tax advantages.  It is estimated that less than three per cent of businesses will be affected and will only apply to new investments in the taxation years after 2018 (all past savings and investments will not face additional tax).

CREA’s pre-budget recommendations:

The federal government did not include any of the recommendations presented by CREA in the federal pre-budget consultation. They included:

  • Modernizing and extending eligibility for the Home Buyers’ Plan (HBP) to Canadians who relocate to secure employment, accommodate an elderly family member in their home, become widowed, suffer a marital breakdown, or wish to assist their children with the purchase of a home.
  • Making home ownership affordable by increasing the HBP withdrawal amount by $10,000 – a limit that has not increased with inflation since 2009.
  • Allowing sellers of investment real estate to defer the recapture of previously claimed depreciation (Capital Cost Allowance [CCA]) on investment property when the proceeds are reinvested in another investment property.

More information: