To dramatically reduce the cost of land for affordable housing, we recommend the federal government amend the Income Tax Act to include “housing gifts” alongside mentions of “ecological gifts” to be used for the creation of affordable housing. This will allow donations of land or property get the same tax treatment as ecological gifts – exempting donations of property from capital gains tax and offering a tax receipt based on fair market value. The goal is not to offset taxes but to create a strong incentive for land donations—with the requirement that the land be used for affordable housing.
A study by the Canadian Mortgage and Housing Corporation indicated that land prices comprised 30% to 75% of the total sale price of a dwelling. Investors are now competing with first time home buyers, compromising at least 30% of residential real estate purchases.
Housing affordability impacts our productivity, GDP growth, labour force availability, immigration levels and military readiness, and availability of land is the largest contributor to skyrocketing housing costs. Many corporations and private landowners hold land for business operations, passive income, or future growth, and current tax rules often make it very expensive for landowners to donate property. The tax credit from the donation does not offset the capital gains tax owed.
Since 2006, ecological land donations have been capital gains tax-exempt. According to the 2015 Federal Budget, this policy led to over $1 billion in land donations (248,000 hectares) for conservation. The system includes strong anti-avoidance rules and has successfully encouraged donations. To implement this change in policy, we recommend that Finance Canada:
- Update the Income Tax Act – Add “housing gifts” alongside “ecological gifts” throughout.
- Add new sections under Paragraphs 110.1(1) and 110.1(18) – Specify that the land must be certified by the Minister (or a designate) for affordable housing use.
- Clarify eligibility – Ensure the tax credit and capital gains exemption apply only if the land is donated exclusively for affordable housing and meets other eligibility criteria, as set out by the Act. Other eligibility criteria may include appropriate municipal zoning classification and certification that the land is clear of any significant environmental liabilities or other hinderances.
- Build in anti-avoidance mechanisms – The department should build in strong anti-avoidance rules to ensure that the donations of land and buildings are used for the intended purpose, and that the provision is not abused to simply avoid large tax bills.
These changes would represent the single largest opportunity to reduce the cost of affordable housing.