What CFAA is doing to protect rental housing
The federal government proposes to set a limit on the amount of interest that any business can claim as an expense against gross income for tax purposes. The proposed limit is 30% of the corporation’s “earnings before the deduction of interest, taxes, depreciation and amortization” (EBITDA). EBITDA is similar to net operating income less applicable administrative expenses.
The measure has been recommended for all countries by the Organization for Economic Cooperation and Development (the OECD), as a step to avoid income shifting, whereby multinational corporations shift expenses, and thus income, between countries to avoid taxes. However, rental housing is very capital intensive, and so many rental providers pay more than 30% of their NOI in interest.
CFAA is working hard to stop the interest deductibility limitation (IDL) from applying to rental housing or other real estate.
Robert McCreight, CFAA’s consultant lobbyist, and I have met the person responsible for the budget in the Prime Minister’s Office, and communicated with the Chief of Staff to the Finance Minister, as well as the key Finance Department policy staff, and other politicians and officials.
To all of them, we have conveyed CFAA’s concerns and the reasons why the proposed measures should not be applied to rental housing, or indeed to all real estate. We are also arranging to meet more officials and politicians who can help to modify the proposed measures.
We have every reason to believe the federal government was relying on the OECD recommendation, and did not realize the unintended negative consequence the proposed limitation would have on rental housing providers and renters.
You can read CFAA’s submission here.
CFAA is also working on building an informal coalition of real estate associations to fight the proposed interest deductibility limitation proposal.
Note: Even if an interest deductibility limitation is announced in Budget 2020, the details of the limitation could still be subject to revision during the process by which the Budget measures are implemented. Revisions could include exempting real estate or rental housing, applying a higher limit on the amount of interest that can be deducted to real estate or rental housing than to other businesses, or other mitigation measures.
John Dickie, CFAA President