Benjamin Tal opens CFAA Conference
Recently, Benjamin Tal, Deputy Chief Economist for CIBC World Markets, gave an insightful presentation to kick off the 2021 CFAA Virtual Rental Housing Conference. (A recording of that talk is available for purchase here)
Benjamin eased some of the concern that the federal government may raise taxes to pay off its debt. He pointed out that governments do not pay off their debt. They roll it over, until it becomes minimized by inflation. On-going deficits need to be reined in, but one-time deficits can be carried in the debt without much harm. Raising taxes would tend to reduce economic output and are politically unpopular.
A new interest deductibility limit
In Budget 2021, the government announced a new interest deductibility limit for most businesses of 30% of revenue. A company which pays more interest than that would not be able to deduct the excess interest from its gross income, with the result that the company would have to pay income tax on income it doesn’t have.
Many other governments around the world have introduced a similar limitation to prevent corporations from shifting their income to low-tax jurisdictions, like the Bahamas or Luxemburg. The Budget did state that there would be a consultation on the application of the new interest deductibility limit, both before and after legislation is introduced.
Before COVID-19 struck, CFAA had explained to the federal government that there needs to be a carve out for rental housing, because rental housing is very capital intensive. We thought the government understood the message, and we are exploring whether they already intend such a carve out. CFAA will pursue that issue.
At his talk, Benjamin Tal stated that he does not believe the interest deductibility limitation to be good policy. It will not raise significant revenue, and (if applied to rental housing) it will decrease the supply of rental units. “It is a step in the wrong direction.” CFAA agrees with Benjamin, and is opposing the application of the limitation to rental housing.