Tag Archives: tax credits

Is a Tax Credit a better way to support Social Housing?

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image courtesy CMI Financial Group

By Kevin Fettig

Special to Financial Independence Hub

One of the biggest challenges in Canada’s rental housing crisis is the lack of new affordable housing units being built.

Despite efforts through the National Housing Strategy’s five programs, only 17,000 units were delivered after four years. This disappointing outcome is only a modest improvement over Ottawa’s track record in the past 30 years. For example, between 1996 and 2013, fewer than 7,000 new units were provided by federal and provincial governments.

In contrast, the United States built 3.5 million subsidized rental units from 1987 to 2021. Adjusted for population, this is equivalent to building 11,000 units per year in Canada. Both countries have tightened the tax benefits of rental real estate, but the U.S. offset this policy shift by introducing the Low-Income Housing Tax Credit (LIHTC) to mitigate the impact of these changes on low- and middle-income renters.

A Canadian LIHTC would offer an alternative method of federal funding by leveraging private-sector expertise in owning, building, and managing low-income rental housing. The LIHTC would provide tax credits to both for-profit and nonprofit owners of rental housing, with nonprofits having the option to sell these tax credits. A key aspect of the program would be its efficient resource allocation, achieved by creating competition among developers for tax credits and using a market-based test for the viability and need for low-income housing.

Complements existing Renter Support Initiatives

The program could be designed to complement existing renter support initiatives, such as local government programs, housing allowances, and rent supplements. It would work by providing tax credits to developers, who would then pass them on to investors to offset their income tax.

Unlike earlier tax credit programs like the Multiple Unit Residential Buildings (MURB) provision, this program would have a cap, with credits allocated annually to each region based on population. The credits would be federally funded and awarded according to provincial objectives. Continue Reading…

Tax Deductions and Tax Credits: What’s the Difference?

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Canadian taxpayers have until May 1, 2017 to file their 2016 taxes. However, before the calendar turns over to a new year many Canadians want to know how best to maximize their tax refund or minimize what they owe the government.

The two main ways to reduce taxes owing are through tax deductions and tax credits. What’s the difference between a deduction and a credit? Let’s explore:

Tax Deductions

A deduction reduces your taxable income. The value of a deduction depends on your marginal tax rate. So, if your income is more than $200,000, you are taxed at the federal rate of 33 per cent and a $1,000 deduction would save you $330 in federal tax. On the other hand, if you were earning $30,000, you are taxed at the federal rate of only 15 per cent and a deduction of $1,000 would only save you $150 in federal tax.

An example of a tax deduction is your RRSP contribution.

Deductions checklist

  • RRSP contributions
  • Union or professional dues
  • Child care expenses
  • Moving expenses
  • Support payments
  • Employment expenses (w/ T2200)
  • Carrying charges or interest expense to earn business or investment income

Tax Credits

There are two types of tax credits: refundable and non-refundable. A non-refundable tax credit is applied directly against your tax payable. So if you have tax owing of $500 and get a tax credit of $100, you now only owe $400. If you don’t owe any tax, non-refundable credits are of no benefit. For refundable tax credits such as the GST/HST credit, you will receive the credit even if you have no tax owing.

Continue Reading…