This past March 2012, Finance Minister Blaine Higgs made an announcement that startled apartment dwellers in New Brunswick. Going into effect in 2013, tenants will be seeing a stunning three-year rent freeze, which is welcome news for cash-strapped renters. But if you think the owners are rental properties are protesting the rate freeze, think again – the freeze is actually part of tax policy revision that rental owners have been clamoring to get for more than five years. In fact, it’s hard to say who’s happier about the change – the renters or the landlords.
You see, in New Brunswick, everyone has to pay a municipal tax on their property. But if the property’s owner doesn’t live in it, they not only have to pay the municipal tax – but there’s a provincial tax too. That means landlords are taxed twice, and for the most part, that extra cost, like many others, are passed on to the tenants occupying the property. Known as the rental tax by those affected by it, this odd bit of taxation means the tax difference between living in a rental unit and living in a home you own is significant – home owners pay almost half the taxers a renter does because home owners get a credit on their provincial tax. To put it another way, if you rent, you’re being double-taxed.
Fortunately, the rent freeze Finance Minister Higgs is putting into place has significant implications for the future – for both tenants, and landlords. Rents in New Brunswick are being frozen as the double taxation is phased out; this way both tenants and landlords win. Landlords save up front as the tax is phased out, and ultimately, face lower taxes in the long term. Financially, they come out ahead even if most of the tax is currently passed on to their tenants. Renters also come out ahead; they make sure that cost savings is almost completely passed on to them by avoiding the annual rent increases that are typical for leases.
The positive fallout goes further, however. Historically New Brunswick has one of the highest vacancy rates for rental properties in Canada at nearly 5% – and considering that renters have been double-taxed for three decades, it’s not hard to understand why. Double-taxation has slowed the economic growth in New Brunswick and made the cost of living even more expensive for a segment of the population that in general could not afford to own their own home despite the tax benefit to doing so. Phasing out the duplicate tax and pairing it with the rent freeze promises to help grow the economy by attracting new residents for the city and decreasing the high vacancy rate. In turn, this helps encourage rental owners to further develop New Brunswick; with the rental penalty eliminated, it becomes more lucrative to own property, and so more properties are purchased and leased for rent, helping foster new growth.
So what does this mean for rental property owners? Well, hopefully, it should mean new tenants incoming, and happier tenants that are already there. While on face this seems to be a more tenant-oriented renovation of the tax system – and without a doubt, tenants certainly benefit – ultimately, it’s the landlords that will come out ahead. While a rent freeze might be somewhat unpalatable, phasing out the double tax means more money in landlord’s pockets from current renters in the short term. In the long term, economic prospects are simply better; an increase in residency will decrease the vacancy rate, meaning more money from existing properties, and make potential new properties a more lucrative investment. In short, it’s never been a better time to invest in New Brunswick rental properties.
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