Canada's real estate community needs to set itself apart from other types of income trusts or risk becoming "collateral damage" in any effort by Ottawa to stem the flow of trust conversions, industry players warned yesterday.
Possible moves by the federal government to change the tax treatment of trusts dominated the talk at an annual Toronto conference on real estate investment trusts yesterday. Many industry participants at the conference felt a discussion paper released by Ottawa this month on the issue had unfairly grouped real estate investment trusts (REITs) with other forms of trusts.
They urged all members of the industry to send a strong message to Ottawa that this is not the case. Much of the recent conversion activity, and the concern it has sparked in Ottawa over lost tax revenue, is centred on business trusts, they pointed out, a structure that is unique to Canada.
On the other hand, many countries allow real estate to be owned through some form of trust structure because it fits with the steady income generated by these long-term, stable assets.
"REITs are suffering by being associated with the trusts," Stephen Sender, Scotia Capital's managing director of real estate, told the RealREIT conference. "We could become collateral damage."
Others predicted that the next few months will see some jockeying for position among different sectors of the trust sector.
"Business trusts are going to be saddling up with everybody else and everybody else is going to try to separate themselves from business trusts," said Dirk Lever, a trust analyst with RBC Dominion Securities.
Indeed, it is understood that representatives of the real estate industry are making the case for REITs in Ottawa. The industry organization, RealPac, also plans to make a formal submission in response to this month's paper.
Michael Smith, real estate analyst with National Bank Financial, said he would be surprised if the federal government did not "carve out" the real estate community for special treatment if and when it makes changes to the rules governing trusts. That's because, he said, many countries, including the United States and Australia, have thriving REIT industries.
Other countries are developing rules for real estate to be held in a similar structure.
"There is growth in REITs around the world," he said. As a result, he said it is hard to imagine Ottawa would stop that growth here.
© The Globe and Mail
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