Investing in rental property became less attractive. Now developers and affordable-housing advocates are lobbying for a return to the pre-reform tax policies of the early 1970s to spur construction of lower-rent accommodation. But they also want a variety of other tax breaks, including reductions in GST and PST expenses.

Tax reform in the 1970s reduced the amount of a building’s capital cost, whether new or purchased, that could be deducted from investors’ incomes. Today, investors can deduct four per cent, compared to as much as 10 per cent pre-1972. Rental property once could be pooled as a portfolio to maximize the benefit of deductions, but no longer. The federal government has also restricted which investors can use “excess” capital cost allowances to reduce other income.

The federal and provincial governments have begun funding affordable-housing construction again, but this is an expensive way to expand the rental market. The Harper government should consider re-instituting the pre-1972 incentives — giving GST and PST breaks to specific interests sends governments down a slippery slope lined with numerous worthy causes.

http://www.winnipegfreepress.com/opinion/editorials/tax-breaks-133944998.html

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In other words, Canadian homeowners are unlikely to experience what U.S .have underwent in terms of the decline of their home value.

“The relationships between average price and income has recently been cited as portending a U.S.- style correction in Canadian home prices,” said Gregory Klump, chief economist for CREA.

Home prices tend to perform well in the market in accordance with periods of sharp growth periods of stability. By contrast, income generally follows an orderly upwards trend over time.

Winnipeg REALTORS® president Claude Davis said the Winnipeg market is more characterized by the term “slow but steady.” In addition, it is known to be one of the most affordable markets in Canada which is not prone to accelerated price increase unlike Calgary, Vancouver and Toronto.

“The Canadian housing market is now widely thought beat, or very near, the top of a cycle,” said Klump, “and the ratio of the home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle.

“History suggests, however, that it will not do so by means of a significant correction in home prices,” he added. “The more likely scenario is that home prices will stabilize, giving incomes chance to catch up again.”

Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle.

Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. Their trends are expected to help Canada avoid a U.S.-style housing crisis.

The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices, according to CREA.

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http://www.afatherslifeonline.com/2008/01/new-year-brings-new-tax-laws.html

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