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Martin Laplante

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Fri, 13 Jan 2006

Tax Credit for Transit Users, Private Housing Builders

The Conservative Party of Canada has proposed a couple of policies that I was sure journalists had gotten wrong, maybe backward. But no, the actual policy statements are there and confirm them.

There would be a 16% tax credit to people who buy transit passes or tickets, as long as they keep receipts. Receipts for each fare. I remember the look on my accountant's face when I presented him with a pile of bus transfers as proof of the cash fares I had paid while working in another city for a while. I can imagine the lineup at the fare collector's window as each passenger asks for a receipt.

If I pay $2.00 for a fare, that receipt is worth 32 cents to me as a tax credit. A hundred of them and I have $32 to go out to dinner, alone, by bus. But each of those little pieces of paper has to be produced and handled by the transit organization, by me, and by the tax department (maybe by my employer also, but that's another story). And it is the poorest people that need the most help from their accountants. But as it turns out, it is a non-refundable tax credit, meaning that if your income is too low you don't get the money. Over a third of the population and probably a larger percentage of transit users would get no benefit.

Wouldn't it be more efficient to give the money to the transit systems directly so that they can reduce fares by 32 cents without all the overhead and paperwork? In this case, the tax credit is going to the wrong place.

As an aside, the original plan as well as the January 13 version said "A Conservative government will give public transit riders a federal tax credit to cover the cost of their monthly transit passes." A December 30 press release says "In response to the Conservative Transit Pass Tax Credit, David Jeanes, President of Transport 2000, has incorrectly suggested in several news reports that the Tax Credit applies only to monthly-pass holders. On the contrary, under a Conservative government, any purchase of transit passes or tickets will be deductible so long as receipts are provided."

Another Conservative policy is to give tax money to private sector builders for affordable housing. I have seen something like that before, from a Conservative government in Ontario. Unfortunately, that one was a trickle-down policy. Most of the subsidies, via municipal taxes, went to subsidizing luxury housing. The reasoning was two-fold: one is that luxury housing is already profitable so only a small subsidy per unit is required to get more of them built. The second was that the people who move into them will vacate older housing that is then available to the poor. Unfortunately, because of rent control laws the vacated apartments immediately shot up in rent, making the average low-end apartment even more expensive than before. Rent on high-end apartments went down because of the supply. The ones who came out ahead are apartment owners and apartment builders.

How does this new policy compare with that one? Hard to say. Here is what the original party policy said:

A Conservative government will work with the provinces and municipalities to develop framework agreements that help low-income city dwellers access affordable housing, through the use of tax incentives for private sector builders. The Conservative Party of Canada recognizes that most renters live in urban centres, and that the pressures of population growth as well as certain economic factors have made it increasingly difficult for many renters to find housing."

This is from the recent outline plan:

On an experimental basis, a new Conservative government establish a tax credit to encourage developers to build or refurbish affordable rental units for low income Canadians. Details of the plan include the following:

  • Setting aside $200 million annually in the form of federal tax credits to encourage developers to build or refurbish affordable rental units.
  • Defining affordable units as those in which at least 40 per cent of the occupants earn less than 60 percent of the local median income.
  • Distributing funding among the provinces on a per capita basis, but smaller provinces will be guaranteed a minimum amount of funding.
  • Administering credits through the Canadian Mortgage and Housing Corporation (CMHC).
Again, I wonder whether the tax is going to the most effective place. Giving money to private builders, and not to public ones, is a bit like giving money to oil companies to make oil prices go down. The definition of affordable is also a bit troublesome, and many cities have gone through the same difficult process.

Someone builds a set of units: 50 luxury condos and 50 rooming units. At some point, a "reverse credit check" is done on those renting the rooming units, checking their income to make sure that it is low enough. At what point is the money released to the builder and when is it safe for whoever bought the building from the developer to evict the rooming residents and convert the space to condos? Or will there be some definition that a certain type of unit is presumed to have a certain rent? Or maybe this will be a new federal rent control contract, where the federal agreement fixes initial and future rent.

There are many players in the affordable housing arena: renters, non-profit groups, public housing, senior housing, governments, and private developers. Giving money to the least needy of all the players somehow doesn't strike me as the most effective use of tax money.

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