Draft White Paper by wuzhenguang


									                         White Paper

Comparing Worldwide Tax Treatment of Housing

       Presented to the International Housing Association

                     2002 Annual Meeting

                        Banff, Canada

               David Crowe and Karen Danielsen

             National Association of Home Builders

                           June 2002

                   Email: dcrowe@nahb.com

          Mail: National Association of Home Builders

                           1201 15th St NW

                        Washington, DC 20005


        Tax treatment is one in a multitude of policies used by governments to provide incentives
or discouragement of a particular activity. Housing receives tax incentives in many forms and in
many countries. Tax incentives are typically a part of broad housing policy that also includes
direct housing subsidies and housing finance enhancements. Housing policies are sometimes
targeted to specific populations and encourage a particular tenure. Some incentives are not
unique to housing, but are targeted to a limited set of goods and services deemed essential or

        Tax incentives have the advantage of requiring a relatively small administrative cost. In
contrast to direct subsidies or regulatory concessions, a tax incentive becomes part of the overall
tax system and requires, at most, some enforcement and monitoring resource added to the taxing
authority to administer. Tax incentives can be targeted, although the efficiency of targeting is
dependent upon the tax system (e.g. income versus consumption) and the desired target (e.g.
geographic versus demographic).

        This white paper briefly reviews the tax incentives available in the 12 countries that
belong to the International Housing Association. Each was invited to participate by completing a
survey (attached). The US National Association of Home Builders volunteered to collect and
compile the information. The 12 countries included in this survey are Australia, Canada, France,
Ireland, Israel, Japan, Malaysia, Mexico, Poland, Uganda, United Kingdom, and United States.
Not all countries were able to supply the necessary information and some additional research was
conducted in an attempt to cover all countries. The material here reflects a synthesis of the
returned surveys and literature readily available on the subject. Comments and corrections are

        This paper is divided into four sections. The first looks at some basic housing statistics
for each country. The remaining sections compare the tax incentives available for housing
through producers, consumers and housing operators.

Housing Statistics

         The attached comparative statistics table shows some basic indicators of size and
economic and demographic differences between the twelve countries. The most striking point is
that these twelve are quite different in every respect and could be considered a reasonable cross
section of country types. The countries are large and small in population and expect growth rates,
high and low in relative incomes, and comfortable and concerned in housing conditions. For the
country with housing production data, the percentage increase in the stock is always greater than
the expected increase in population, implying that some houses need replacement or relocation.
Homeownership rates are relatively high for the countries with data, but not necessarily related
to their tax incentives.

Tax Incentives for Housing

         This paper considers incentives carried through direct taxes such as income tax, capital
gain, sales tax (also known as Value Added Taxes or General Sales Taxes), property tax, and
transfer tax. Taxes excluded from this analysis include inheritance taxes, excise taxes, duties or
tariffs that may be applicable to the housing industry (except in the case of Mexico), indirect or
imputed tax benefits and the effects of direct subsidies on personal income taxes. We also
excluded differential tax treatments of non-profit housing producers.

         The tax incentive discussion is divided into three parts based upon the primary
beneficiary—producer, consumer or operator (owner of residential renter property). Countries
differ in many ways, but one of the most significant is based upon the sources of revenue. In
countries with heavy reliance on consumption taxes, the incentives are primarily reductions in
the rate or complete exemption. In countries with income taxes, the incentives are applied with
deductions, lower rates and exemption from taxation. The accompanying charts lay out the
different classes of incentives based on these distinctions.

Housing Producers

        Few countries provide incentives to build homes. If done at all, the most frequent
method is a reduction in the consumption tax. France reduces the VAT to 5.5 percent from 19.6
percent for new construction and substantial rehabilitation of social housing. Mexico exempts
sales of goods and services related to housing construction from the 15 percent VAT. Poland
reduces the VAT for rehabilitation expenses. The UK exempts land leases from VAT if they fall
between £60,000 and £150,000. Israel allows investors to avoid capital gains tax on half of the
apartments in a complex if rented for five years before the sale.

        One country, Ireland, reduces capital gains on land sales if the ground will be used for
residential development. Israel offers incentives for multifamily construction if at least half of
the units are for residential use for at least five years. UK provides exemption from sales,
transfer, lease and interest taxation on land that falls within certain designated disadvantaged
areas. Mexico, as part of joining the North American Free Trade Agreement (NAFTA), has
eliminated many tariffs on building materials and equipment and will eliminate all by 2003.

        The US provides the most extensive producer tax incentive. Producers of low-income
housing compete for state allocations of federal tax credits. The competition is based on
population served, need for the housing in the area and other criteria established by the state.
Each state receives an annual allocation based on its population. The chosen projects sell the tax
credits to investors to raise equity to build the homes. The units must serve the target income
population for 15 years at rents affordable to families with incomes at or below 60 percent of
area median income. The investors use the credits against their federal income tax obligation
over a period of ten years. The program was instituted in 1986 and has produced over one
million units.

Housing Consumers

        All of the countries that we could find any information on have some consumer tax
incentives for housing. The most frequent are elimination or reduction in consumption taxes
(VAT, GST, etc.). Many countries do not tax income from capital gains on owner occupied
homes and a number provide additional tax incentives to owners including mortgage interest

        The predominate incentive is partial relief from the country’s consumption tax. Australia
exempts existing home sales completely and new homes receive a rebate but it is scheduled to
decline from AUS$10,000 to AUS$7,000 in July 2002. Canada exempts existing home sales but
taxes new homes at a lower rate than other goods. The rebate in lower taxes was set in order to
generate the same revenue as before the change. The reduction phases out for homes valued
between CAN$350,000 and CAN$450,000. Construction of rental units is exempt from the
GST. Renovation expenses in Canada do not receive a reduction. Ireland, Japan, Mexico and
UK provide complete exemption from consumption taxes. The US has no national consumption
tax and state sales taxes do not apply to housing (although some apply tax to the materials for
building new homes). France reduces the VAT from 19.6 percent to 5.5 percent, which is also
true for other essentials such as food, newspapers and magazines. Israel reduces the sales tax on
residential land and buildings to 0.8 percent from the normal rate of 2.5 percent. Poland exempts
only rental housing, not owner occupied.

         Capital gains from the sale of a principle residence are treated preferentially in most
countries observed. Australia, Canada, France, Ireland, Israel, Mexico and UK exempt income
from capital gain taxation on a principle residence usually with occupancy conditions, e.g. used
as a principle residence for last two years. The US exempts a large portion of the gain—up to
US$500,000 for a married couple and up to US$250,000 for a single tax payer. Japan requires
the repurchase of a home of equal or greater value in order to shield the gain and then taxes gain
above 30 million yen at progressively higher rates. Malaysia does not exempt gain but does tax
it on a sliding scale.

        Five of the countries allow some tax reduction that is related to mortgage interest paid.
France permits full deduction of mortgage interest paid, as does Israel in most transaction. The
UK eliminated a deduction capped at the interest on £30,000 in April 2000. The US allows
deduction of interest on debt up to US$1.1 million. Japan allows one percent of the loan value,
up to loans of 50 million yen, as a deduction for the first ten years. Ireland has the most unique
treatment. Buyer’s mortgage payments are reduced by up to 20 percent of the loan amount each
month (the annual amount is divided by 12). The lender then applies to the government for the
reduced payment amount.

        First time home buyers are given special consideration in a number of countries and in a
number of different ways. Australia exempts first time home buyers from the stamp duty (a kind
of transfer tax), which saves the typical buyer AUS$2,500. Ireland reduces the stamp duty on a
progressive basis. Purchasers of homes under £150,000 pay no duty; purchasers of homes up to
£500,000 pay 3 percent of the amount above £150,000; and purchasers of homes over £500,000

pay 9 percent stamp duty. Israel exempts first time purchasers from the stamp tax that is usually
between 3.5 percent to 5 percent.

        The US offers two programs funded through federal tax incentives for first time home
buyers. States are allocated bonding authority on the basis of their populations. Among other
purposes, each state may sell federal tax-exempt bonds and use the proceeds to provide
mortgages to first time home buyers with incomes below 115 percent of area median income and
for the purchase of homes under prescribed limits. The ultimate mortgages carry a lower interest
rate because the interest on the underlying revenue bonds are tax exempt.

        The US also allows potential first time home buyers or their parents or grandparents to
avoid the standard 10 percent penalty for withdrawing money from a tax-deferred retirement
account if the money is used to purchase a first home. The withdrawals from accounts
established for retirement savings are taxed as income when withdrawn since they were
deposited with pre-tax dollars.

         A few countries provide tax incentives to encourage savings specifically for home
purchase. France provides a housing contract system called epargne-logement (EL) which does
not tax earnings. The account must be open for at least 18 months before being used for a home
purchase. Poland has two contract forms, which allow households to claim 30 percent of the
savings as a credit against tax liability. The maximum first year credit is PLN 1,305. The US
began a test program for people moving from welfare to work and with very low incomes.
Eligible individuals receive matching savings from local non-profit organizations that, in turn,
are reimbursed by the federal government. The grant money earns interest tax free and the grant
itself is not taxed. The individual may use the money for a first home down payment, college
tuition or to start a business. Japan allows parents and grandparents to give tax-free amounts to
their children and grandchildren for the purchase of a first home. Up to 5.5 million yen can be
given tax-free or up to 15 million yen can be deducted against tax liability.

       There are a few other tax incentives that are unique to the individual country. France and
the UK provide home owners incentives to save energy. French home owners can deduct up to
15 percent of the cost of equipment and materials for renewable energy production and UK
residents are subject to a five percent VAT rather than the 17.5 percent on energy saving
products. Ireland allows rural home owners to deduct 10 percent of rehabilitation costs and five
percent of new construction costs over a 10 year period. Ireland also promotes accessory
apartments by allowing 10 percent of the cost as a deduction over the first 10 years. The UK
exempts the rental income from taxes if the units are attached to an owner occupied unit.

        Japan reduces property taxes based on the size of the home and the number of years of
residency. Property taxes are reduced by 50 percent for the first three years of ownership for the
first 120 square meters of space. The land tax is reduced to one-third of the fixed property tax
and one-third of the urban planning tax. For homes up to 200 square meters, the reduction is
another 50 percent. In the UK, the transfer tax is graduated by house price beginning with no tax
on homes valued under £60,000. The tax is one percent on homes between £60,000 and
£250,000; three percent on homes between £250,000 and £500,000 and four percent on homes

over £500,000. All real estate property taxes for first and second homes are deductible on US
home owner tax returns.

        Two countries impose special employment taxes and the revenues are used to support
housing. French employers are levied a 0.45 percent payroll tax that goes to a special housing
fund providing low-interest mortgages for employees. Mexican employers pay a five percent tax
to the National Housing Workers Fund. The fund offers affordable fixed rate mortgages for
homes up to 430,000 pesos in the federal district and up to 368,000 pesos elsewhere. In Japan,
employer-purchased or rented homes are not considered taxable income to the employee.

Housing Operators

       Firms and individuals who rent homes receive very little tax incentives in the twelve
countries under study. Canada exempts rent from the national consumption tax and France and
Poland reduce the rate. Rental income is taxed favorably in Israel and Ireland. Israel exempts up
to $1,400 per month from tax and Ireland encourages accessory or “over the shop” housing by
exempting income. Japan allows shorter depreciation schedules for “specific superior rental

        At least three countries have negative tax incentives that treat rental housing less
favorably than other forms of investment. In both Canada and the US, losses from residential
rental cannot offset other income, certain construction period expenses must be capitalized and
depreciated rather than expensed in the year spent and depreciation schedules may be longer than
economic life and do not allow separate schedules for different components of the building.

       In Mexico, a form of alternative minimum tax is applied to all assets, including
residential rental properties. Tax payers must pay the greater of their income tax or 1.8% of the
adjusted basis of all assets.

Summary and Conclusion

        Tax incentives for housing come in all sizes and shapes. Countries vary in their
encouragement as a result of their particular tax structure and as a result of the unique public
purposes desired. This paper reviews many of the major incentives in most of the 12 members of
the International Housing Association.

       Most incentives flow through the consumer. A few are aimed at the housing producer
and a small number are focused on firms or individuals who provide rental housing. The largest
category of incentives provides some tax relief to home owners, especially first time home
buyers. A few concepts are used extensively, especially reduction or elimination of the
consumption tax and relief from capital gains tax. Some unique concepts are also available that
show innovation and focus on certain public policies.

       More work could be done to enhance this summary, including a brief description of each
countries tax system in order to put the incentives in perspective to other favored sectors. The

absence of mention of some countries does not necessarily imply that incentives do not exist but
rather that we were unable to find any information.

Survey for An International Comparison of Tax Incentives for Housing

We need your help in constructing a paper that properly describes the various ways
governments’ assist affordable housing through the tax system. A systematic approach
addressing a series of topics is the best way to get this started. The National Association of
Home Builders of the United States proposes to assemble this paper from your input.

This survey is designed to find out how other countries use their tax code to make house
production and owning and renting more affordable for households. In the United States
homebuyers and homebuilders are given incentive to build affordable housing using the federal
income tax code. For example, homeowners are allowed to deduct the interest paid on a
mortgage from their annual tax bill, effectively reducing their taxable income, to encourage
homeownership. Homebuilders are given incentive to build affordable housing through tax

We appreciate you taking the time in providing the information requested below. Please answer
the questions to the best of your ability; we do not expect you to be expert in the tax law of your
country. An electronic reply to dcrowe@nahb.com is preferred but we will take the response in
any form you desire.

Housing Producers

Are there tax incentives given directly to housing producers? Is the total amount of incentive
limited or capped? How is it allocated? Are the incentives focused on particular incomes or
household types (below median income, targeted demographic groups, first-time home buyers,
etc.), geographic areas, types of producers (non-profits, small, etc.) or properties (rental or owner
properties, new or existing)? What level of government provides the incentive? How large is
the program (funds devoted, units supported, etc.)

Housing Consumers

Are there tax incentives given directly to home owners? Is the total amount of the incentive
limited or capped for an individual or in total? How is it allocated, if the total is limited? Are
there eligibility requirements (income, location, first-time buyer, etc.)? How large is the average
home owner benefit? How large is the total tax reduction?

Are there tax incentives given directly to renters? Is the total amount of the incentive limited or
capped for an individual or in total? How is it allocated, if the total is limited? Are there
eligibility requirements (income, location, family status, etc.)? How large is the average benefit
per household? How large is the total tax reduction?

Housing Operators

Are there tax incentives given to residential rental property owners? Is residential rental property
taxed more favorably than other real property? Is the total amount of the incentive limited or

capped for an individual or in total? How is it allocated, if the total is limited? Are there
restrictions on the property or targeted populations? How large is the benefit per household?
How large is the total tax reduction?

Indirect Incentives

Are there incentives to the residential finance sector that reduce the cost of borrowing or increase
accessibility to financing for owners or renters? Are there tax-driven interest rate reduction
programs for housing? Do these programs have restrictions, limits, targeted populations? Who
administers these programs? What level of government taxation is affected?


In all of the questions above, please try to note what level of government provides the incentives.
We suggest labels such as national, state and local government. If a different segmentation is
useful, please use it but let us know how you have defined the differences.

Additional Comments

Please add any information that you think would be helpful in preparing a description of the
various tax techniques for providing incentives and assistance to housing in your country.

Please feel free to contact us if you have questions. Jerry Howard or David Crowe, National
Association of Home Builders, 1201 Fifteenth St. NW, Washington, DC 20005. (800) 368-5242,
or jhoward@nahb.com and dcrowe@nahb.com.

                                                                Comparative Statistics
                            2000 per                               Annual                 persons            Housing              Existing                      Home
                   2000      capita    1999       2015             Rate of    Crude Birth   per   Per capita Starts               Housing             Flow/     Owner
Data item        Population   GNI    Population Population         Growth        Rate      room     GDP       (flow)               Stock              Stock      Rate

                                            World       World       World       World                          Erasmus            Erasmus            Erasmus   Erasmus
                                         Development Development Development Development   United    United      Univ.              Univ.              Univ.     Univ.
Source           World Bank   World Bank  Indicators  Indicators  Indicators  Indicators   Nations   Nations   Rotterdam          Rotterdam          Rotterdam Rotterdam
units             (000s)        US $       (000s)      (000s)                 per 1,000              US $       (000s)     Year    (000s)     Year

Australia           19,182     $20,240      19,000       21,500        0.8%          13              $21,319        107 1998         7,012 1997          1.5%        70%
Canada              30,750     $21,130      30,500       33,500        0.6%          11        0.5   $20,822        150 1999        11,768 1999          1.3%        64%
France              58,892     $24,090      58,600       61,100        0.3%          13        0.7   $24,267        286 1995        27,807 1995          1.0%        60%
Ireland              3,794     $22,660       3,800        4,300        0.8%          14              $24,825
Israel               6,233     $16,710       6,100        7,900        1.6%          21        1.2   $17,564
Japan              126,870     $35,620     166,600      124,300       -1.8%          10        0.8   $34,276      1,201 1999        48,922 1997          2.5%        62%
Malaysia            23,270      $3,380      22,700       29,300        1.6%          24               $3,613
Mexico              97,966      $5,070      96,600      118,300        1.3%          27       1.4u    $5,036
Poland              38,650      $4,190      38,700       38,800        0.0%          12          1    $3,991
Uganda              22,210       $300       21,500       31,400        2.4%          46                $301
United Kingdom      59,739     $24,430      59,500       59,800        0.0%          12        0.5   $24,323        199 1995        24,442 1995          0.8%        67%
United States      281,550     $34,100     278,200      316,400        0.8%          15        0.5   $32,778      1,667 1999       115,253 1999          1.4%        67%

World            6,057,261      $5,170   5,978,000    7,084,300       1.1%           22

                   International Comparisons of Tax Incentives for Housing Producers

          VAT/GST/ Sales Tax     Capital Gains         Income/ Corporate Tax         Property Tax   Other
          Exemption Rebate       Exemption
Australia N/A                    N/A                   N/A                           N/A            N/A
          N/A                    N/A                   (Soft costs of construction                  N/A
                                                       must be capitalized, not
                                                       deductible in the year
          Reduced VAT of 5.5%    N/A                   N/A                           N/A            N/A
          (from 19.6%) for new
France    construction and
          renovation of social
          N/A                    Capital Gains         N/A                           N/A            N/A
                                 Reduction from 40%
                                 to 20% on land sold
                                 for residential

          N/A                    Capital gains exempt N/A                            N/A            Incentive for multifamily
                                 on up to half of rented                                            rental construction if at
 Israel                          flats if rented for five                                           least half of units are for
                                 years                                                              residential use for at
                                                                                                    least 5 years
 Japan N/A                        N/A                  N/A                           N/A            N/A
Malaysia N/A                      N/A                  N/A                           N/A            N/A
         VAT exemptions (rate is N/A                   N/A                           N/A            NAFTA has eliminated
         15%) for the transfer of                                                                   many tariffs on building
         goods and services                                                                         materials and equipment
         related to housing                                                                         and any remaining tariffs
Mexico construction                                                                                 should be removed by
                                                                                                    2003 (now 6-10% on
                                                                                                    building materials and 9-
                                                                                                    13.5% on equipment

                    International Comparisons of Tax Incentives for Housing Producers

          VAT/GST/ Sales Tax        Capital Gains      Income/ Corporate Tax             Property Tax               Other
          Exemption Rebate          Exemption
          Reduced VAT on            N/A                N/A                               N/A                        1. Large tax benefit for
          residential building                                                                                      new construction of
          materials and materials                                                                                   owner-occupied housing.
          for rehab program                                                                                         2. Tax concession for
                                                                                                                    building cooperative
Uganda N/A                     N/A                     N/A                               N/A                        N/A
        Land leases are exempt                                                           N/A                        Tax exemption on sales,
        from VAT if they fall                                                                                       transfers, leases or
 United between £60,000 and                                                                                         interest on land that falls
Kingdom £150,000                                                                                                    within certain designated
                                                                                                                    disadvantaged areas

                                                       The Low-Income Housing Tax        Non-profit housing         Non-profit housing
                                                       Credit is allocated to states     producers that are         producers that are
                                                       based on population. Each         categorized by the IRS     categorized by the IRS
                                                       state allocates credits to        as 501(c)3 organizations   as 501(c)3 organizations
                                                       individual projects and the       are exempt from all        are exempt from all
                                                       developer sells the credits to    property tax.              federal, state and local
 United                                                investors. The investors use                                 taxes for all construction
 States                                                the credits to reduce their                                  materials used; services
                                                       income tax liability over a 10-                              are taxed.
                                                       year period. Over the 14-year
                                                       history of the program, about
                                                       one million units have been

                                                              Tax Incentives for Housing Consumers
          VAT/GST/Sales Tax        Capital         Mortgage Interest     First-Time Homebuyers    Contract Saving/Savings                               Other
Country   Exemption Rebate          Gains             Deduction                                     Interest Exemption
          Yes; only on resale   Yes, on          No                      Relief on stamp duty (transfer
          homes and residential principle                                tax), which averages
          rents. New homes are residence                                 AUS$2,500; reduction on GST
          subject to 10% GST,
          with a rebate of
          AUS$10,000, which
Australia falls to AUS$7,000

          Yes; 36% reduction in   Yes, on        No
          7% GST for new          principle
          homes; phased out for   residence
          homes valued over       (valued at
          CAN$350,000 and         CAN$1billion
          eliminated over         in 2000)
          CAN$450,000; owner-
Canada    built homes get
          reduction on house
          input purchases.
          Renovations qualify
          only if rebuilding;
          Existing homes are
          exempt from GST.
          Rental construction
          VAT is reduced from     Yes, on        Yes, fully deductible                                    Housing contract system called 1. Homeowners may deduct up to
          19.6% to 5.5% for the   principle                                                               epargne-logement or EL.            15% of cost of equipment and
          purchase of new home    residence                                                               Earnings are tax-free. Must be     materials for renewable energy
          or home lot (other                                                                              held for a period of at least 18   production      2. Employers are
          essentials, e.g. food                                                                           months to 5 years depending on levied a 0.45% tax on payroll that
          newspapers,                                                                                     contract type. State premium on goes to a special housing fund that
 France   magazines, receive                                                                              savings (tax-free) is not paid if  provides low-interest loans for
          same reduction)                                                                                 withdrawn prematurely (PEL) or employees that want to buy homes.
                                                                                                          won’t be paid if loan is not taken
                                                                                                          out (CEL). Can transfer funds tax-
                                                                                                          free to close relatives.
                                                              Tax Incentives for Housing Consumers
          VAT/GST/Sales Tax        Capital         Mortgage Interest     First-Time Homebuyers    Contract Saving/Savings                  Other
Country   Exemption Rebate          Gains             Deduction                                     Interest Exemption
          Yes exempt for sales Yes               Yes. Up to 20 percent       1. Stamp tax reduction. Phased                 1. Anti-speculative tax of 2 percent
          and purchase of home                   tax credit (Tax Relief at   in percentages for first time                  charged against non-owner
                                                 the Source TRS). Tax        homebuyers; Houses less than                   occupant houses.           2. Rural
                                                 credit is divided by 12     £150,000 no tax; next level                    owner-occupants get 10 % tax
                                                 and deducted from           starts at 3% for each £50,000                  deductions against income for 10
                                                 monthly mortgage            paid to a ceiling of £500,000 that             years for rehabilitation costs and
                                                 payment. Lender applies     pays 9%.                  2. First             5% for new construction over 10
                                                 to government for           time homebuyer mortgage                        years for the owner’s primary
                                                 rebate. Limit is £2,000     interest relief of £2,500 per                  residence only. 3. “Living over the
                                                 for single filer and        single filer and £5,000 for                    shop” (accessory apartments) get
Ireland                                          £4,000 for                  widowed/married filer.                         100% of refurbishment or
                                                 married/widowed filer.                                                     construction costs are allowed a
                                                                                                                            10% deduction over the course of
                                                                                                                            10 years

          Sales tax is reduced to Yes in most    Yes. in most                No purchase tax for first time
          0.8% from normal        transactions   transactions                home buyers (normal is 3.5%
          2.5% for residential                                               –5.0%)
          land and buildings

                                                                Tax Incentives for Housing Consumers
          VAT/GST/Sales Tax        Capital           Mortgage Interest     First-Time Homebuyers    Contract Saving/Savings                  Other
Country   Exemption Rebate          Gains               Deduction                                     Interest Exemption
          Yes. Home purchase      Yes, if home     One percent of loan                                                        1. Property taxes are reduced 50%
          and rent transactions   is of equal or   balance for principal                                                      for the first 3 years of ownership for
          exempt from 5%          greater value    residence may deducted                                                     first 120 sq. m. Tax on home lots is
          national consumption    If property is   each year for 10 years.                                                    reduced to 1/3 of fixed property tax
          tax.                    owned for        Benefit applies to loans                                                   and 1/3 of urban planning tax. For
                                  over 10 years,   under 50 million yen                                                       small housing (up to 200 sq. m. the
                                  profit gets a                                                                               property tax reduction is doubled
                                  credit of 30                                                                                (1/6 of fixed property tax and 2/3
                                  million yen                                                                                 urban planning tax. 2.Transfer
                                  and remaining                                                                               taxes reduced by 30 million yen
                                  gain is taxed                                                                               because of job-related move. 3.
                                  at 14% up to                                                                                Employer-purchased or rented
                                  60 million yen                                                                              home is not considered taxable
                                  and 20%                                                                                     income to employee. 4. Parent or
                                  above that.                                                                                 grandparent can give child or
                                  Losses from                                                                                 grand child up to 5.5 million yen tax
                                  sale of                                                                                     free for purchase of home or up to
Japan                             principal                                                                                   15 million yen can be deducted
                                  residence can                                                                               from income. Child or grandchild’s
                                  be used to                                                                                  annual income must be under 12
                                  offset other                                                                                million yen and home purchase
                                  income and                                                                                  must be made by end of 2003.
                                  can be carried
                                  forward if
                                  there is
                                  Income must
                                  be less than
                                  30 million yen

                                                        Tax Incentives for Housing Consumers
          VAT/GST/Sales Tax        Capital   Mortgage Interest     First-Time Homebuyers    Contract Saving/Savings                         Other
Country   Exemption Rebate          Gains       Deduction                                     Interest Exemption
                               No but tax is                                                                                   Taxes are fairly light for
                               levied on                                                                                       consumers. Acquisition tax is
                               nominal gain                                                                                    borne by developers and
                               on a sliding                                                                                    property tax is paid by owner
                               scale (not
                               flat rate)
         Residential sales are Yes; Must     No                                                                                5% payroll tax paid by
         exempt from 15%       have been                                                                                       employers to National Housing
         VAT                   owner-                                                                                          Workers Fund; Funds
                               occupied                                                                                        affordable, fixed rate mortgages
Mexico                         during two                                                                                      for houses with a value of 430K
                               years before                                                                                    pesos in the Federal District
                               sale                                                                                            and up to 368K pesos in the
                                                                                                                               rest of the country

          No; Exemption only                                                              Housing Contract system has
          on rental housing                                                               two forms, non-profit
          transactions                                                                    “mieszkaniowe” subsidy that
                                                                                          is a tax credit based on actual
                                                                                          savings. Household can
                                                                                          claim 30% of annual savings
                                                                                          as a credit against tax liability.
Poland                                                                                    “Bausparkassen” contract (for
                                                                                          profit) is a 30% credit saved
                                                                                          up to a limit equal to the
                                                                                          average value of 3 sq. m. of
                                                                                          housing. Maximum first year
                                                                                          subsidy is PLN 1,305.

Uganda                         No

                                                      Tax Incentives for Housing Consumers
        VAT/GST/Sales Tax      Capital    Mortgage Interest      First-Time Homebuyers    Contract Saving/Savings               Other
Country Exemption Rebate        Gains         Deduction                                     Interest Exemption
          Yes               Yes, on    No, eliminated in April                                                      1. Rental income from owner-
                            principle  2000 (was 10%                                                                occupied multifamily dwelling
                            residence  deduction of interest in                                                     exempt from tax. 2. Home
                                       first £30,000 interest                                                       energy saving products are
                                       paid)                                                                        subject to 5% VAT rather than
 United                                                                                                             17.5%. 3. Transfer tax is
Kingdom                                                                                                             graduated by house price; none
                                                                                                                    on homes under £60,000; 1%
                                                                                                                    on £60,000 to £250,000; 3% on
                                                                                                                    £250,000 to £500,000 and 4%
                                                                                                                    on values over £500,000.

                                                          Tax Incentives for Housing Consumers
        VAT/GST/Sales Tax       Capital     Mortgage Interest        First-Time Homebuyers           Contract Saving/Savings                    Other
Country Exemption Rebate        Gains             Deduction                                              Interest Exemption
         N/A                Yes, up to     Yes. Fully deductible States may issue federal tax- Individual Development             All property taxes are deductible
                            $250,000       up to interest on $1.1 exempt bonds (within their       Accounts (IDA) authorized by from pre-tax income
                            gain for       million loan.          allocation) to fund mortgages Assets for Independence Act
                            single filer                          for first-time homebuyers.       of 1998. Administered by
                            and                                   The home price and the           federal department (HHS),
                            $500,000                              buyer’s income must fall         TANF recipients and EITC
                            gain for                              below certain limits. The        participants are eligible. The
                            married                               mortgages carry a lower          plan can help purchase a first
                            couple filers                         interest rate as a result of the home, college education or
                            is exempt.                            lower rate on the bonds, an start a small business. They
                            Owners                                effective tax subsidy carried are similar to 401(K) plans
                            must have                             from federal treasury to home where the participant
                            lived in their                        owner. First time home           contributes to a savings plan
                            house for 2                           buyers, their parents and        and a non-profit entity
                            of the last 5                         grandparents are exempt          matches, or many times adds
United                      years                                 from 10% withdrawal penalty a predetermined percentage
States                                                            from tax-preferred retirement higher than the original
                                                                  accounts if used for             deposit. The federal
                                                                  downpayment.                     government provides the
                                                                                                   matching money grants for
                                                                                                   non-profits now for a
                                                                                                   demonstration program that is
                                                                                                   expected to become
                                                                                                   permanent. Although the
                                                                                                   interest on the participant is
                                                                                                   taxable in the year earned,
                                                                                                   the matching money
                                                                                                   accumulated is considered a
                                                                                                   gift (not taxed) when
                                                                                                   redeemed and the donor may
                                                                                                   take a tax deduction for the
                                                                                                   contribution made.

   International Comparisons of Tax Incentives for Housing Operators (Rental Housing)

              VAT/GST/Sales Tax         Capital Gains
Country                                                        Income/ Corporate Tax
              Exemption Rebate           Exemption
        Rents exempt from GST                           (Some negative policies, including
        and building rental                             the inability to use real estate losses
        buildings receives the                          against other income, capitalizing
        same 36% reduction as                           rather than expensing construction
 Canada owned homes.                                    period expenses, the ability to pool
                                                        assets for depreciation and the rate
                                                        of depreciation.)

            Residential rents subject
            to 2.5% rental tax rather
            than 19.6% GST

                                                        Tax relief is available for all investors
                                                        against all rental income of 100
                                                        percent construction costs and 100
                                                        percent of expenditure for conversion
                                                        or rehabilitation in certain rural areas.
                                                        The house must be rented and not
                                                        used as the owner’s primary
                                                        residence. This same scheme
                                                        applies to “Living over the Shop”
                                                        housing sometimes called accessory
                                                        apartments in the US. College
                                                        Student rental housing is also eligible
                                                        for tax relief if the housing meets
                                                        Rental income up to to $1,400 per
                                                        month is tax-exempt.

   International Comparisons of Tax Incentives for Housing Operators (Rental Housing)

             VAT/GST/Sales Tax         Capital Gains
Country                                                            Income/ Corporate Tax
             Exemption Rebate           Exemption
                                                             Providers of "specific superior rental
                                                             houses" are allowed to increase
                                                             depreciation by 40 % for the first five
                                                             years (or 30% for houses with a
                                                             lifetime of less than 35 years).
                                                             Owners of the same kind of
                                                             residential rental property receive a
 Japan                                                       reduction of 40% of the fixed asset
                                                             tax (up to a floor space of 120 sq m.).
                                                             If the home is rented to seniors, then
                                                             the depreciation reduction is
                                                             increased to 55% and the fixed asset
                                                             tax is reduced to one-third of the
                                                             normal amount.

                                   Capital gains on sale     (A 1.8% asset tax is imposed on the
                                   of rented property is     adjusted basis of all assets as an
                                   adjusted for inflation.   alternative minimum tax.
Mexico                                                       Corporations and individuals must
                                                             pay the greater of the income tax or
                                                             asset tax.)
           The 22% VAT is reduced Capital gains taxed at
           for residential buildings ordinary rates.
           and is not imposed on

  International Comparisons of Tax Incentives for Housing Operators (Rental Housing)

          VAT/GST/Sales Tax         Capital Gains
Country                                                      Income/ Corporate Tax
          Exemption Rebate           Exemption
                                                      (Some negative policies, including
                                                      the inability to use real estate losses
                                                      against other income, capitalizing
United                                                rather than expensing construction
States                                                period expenses, the ability to pool
                                                      assets for depreciation and the rate
                                                      of depreciation.)


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