Elmarzougui, Eskandar

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Cost of removing the tax exemptions for Real Estate Investment Trusts

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Eskandar Elmarzougui

Published on April 3, 2023 PDF

This report provides an estimate of the additional revenues that could be collected by the federal government if tax exemptions for Real Estate Investment Trusts (REITs) are removed, and REITs are subjected to the statutory corporate income tax rate of 38 per cent.

Highlights

We estimate that the federal government would collect $285.8 million additional revenues over the 2023 to 2027 tax years after removing tax exemptions for REITs and subjecting them to the statutory corporate income tax rate of 38 per cent.
Under the proposed legislation, REITs are expected to incorporate. After their incorporation, public Real Estate Investment Corporations and non Canadian Controlled Private Real Estate Investment Corporations (CCP-REICs) would pay a federal tax rate of 15 per cent; CCP-REICs would pay a federal tax rate of 8 per cent on distributed income and 38.67 per cent on non-distributed income.
We further estimate that each 5 percentage points increase in the proportion of income distributed to non-residents (non-taxable residents) would increase, on average, the additional revenues by $93.4 million ($128.1 million) over the 2023-2027 tax years.
Government revenues are not assumed to be affected by any behavioural response, other than trusts incorporation, after the proposed legislation comes into force.

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