Mortgage Professionals Canada was invited by the Minister of Finance’s office to the attend today’s budget lock-up in Ottawa. As a result of our advocacy efforts, we are pleased that the government has not introduced any new changes to mortgage rules. However, we are disappointed that the government has not committed to increasing the supply of new homes in Toronto and Vancouver and remain concerned about the economic impact the existing changes are having on the marketplace. The government did announce support to build more rental units and clarified the rules around taxation for passive investments. More information on the specifics of those measures are outlined below.

Support for Rental Units
The government proposes to increase the amount of loans provided by the Rental Construction Financing Initiative from $2.5 billion to $3.75 billion over the next three years. In total, this measure alone is expected to spur the construction of more than 14,000 new rental units across Canada.

Passive Investments in a Corporation
The government proposes two new measures to passive investment savings in a corporation, which replace the previous announcement made in the summer.
First, Budget 2018 proposes to introduce an additional eligibility mechanism for the small business tax deduction, based on a corporation’s passive investment income.
Under the proposal, if a corporation and its associated corporations earn more than $50,000 of passive investment income in a given year, the amount of income eligible for the small business tax rate would be gradually reduced.
The small business deduction limit would be reduced by $5 for every $1 of investment income above the $50,000 threshold (equivalent to $1 million in passive investment assets at a 5-per-cent return), such that the business limit would be reduced to zero at $150,000 of investment income (equivalent to $3 million in passive investment assets at a 5-per-cent return).
Existing savings will not be subject to any additional tax upon withdrawal and capital gains, realized from the sale of active investments or investment income incidental to the business, will not be considered passive investments under this proposal.
Second, Budget 2018 proposes that corporations no longer be eligible to obtain refunds of taxes paid on investment income while distributing dividends from income taxed at the general corporate rate. Refunds will continue to be available when investment income is paid out.
The two measures will apply to taxation years after 2018.

We will continue to advocate for common-sense changes to the existing mortgage rules to improve choice and competition for Canadian consumers.