Ontario is a Province of economic opportunity. But some communities do not share equally in our collective prosperity. In fact, between 2008 and 2019, 87 per cent of jobs in Ontario were created in just two cities – Toronto and Ottawa.
If Ontario and its citizens are going to reach their potential, we must support growth and economic opportunity in all communities. To accomplish this goal, Ontario REALTORS® are proposing the provincial government support the use of Opportunity Zones in economically challenged communities.
Opportunity Zones were first created in the United States as part of the Tax Cuts and Jobs Act 2017. It was first proposed by Senators Tim Scott (South Carolina) and Cory Booker (New Jersey) to leverage private capital investment into economically distressed communities.
In the United States, Opportunity Zones are designated by State governments using census income data. The zones are targeted (for the most part) at low-income census tracts. Under the policy, when a community gets designated as an “Opportunity Zone” the federal government will allow investors to defer capital gains taxes on investments provided the money is reinvested in those communities.
Most often, the money is invested through “Qualified Opportunity Funds” which are set up to invest in either real estate development or directly in businesses in the community through an equity stake. For example, a Qualified Opportunity Fund could purchase and install new solar panels, or it could buy an apartment building and substantially improve it.
To date, over 8,800 Opportunity Zones have been designated in the United States, leveraging $75 billion in private capital and an estimated $11 billion in new wealth for residents living in those communities.
The Government of Ontario should implement Opportunity Zones to stimulate investment in struggling communities including those in rural and Northern Ontario. Ontario has already shown a desire to encourage growth in non-traditional municipalities through its creation of the Regional Opportunities Investment Tax Credit, which provides a 10 per cent refundable tax credit to businesses that make physical investments in non-GTA municipalities.
Queen’s Park should take this idea a step further by endorsing Opportunity Zones, which provide preferential tax treatment for investments in provincially identified communities and locales.
Opportunity Zones would undoubtedly stimulate investment in rural and Norther Ontario. They could also be used for less developed or well-off areas within the Greater Toronto Area.
In light of the pandemic, eligible investments could include more than just investments that create new industrial businesses or residential developments but rather could help build a case for office re-location to these communities given the potential long-term endorsement of remote work.
Furthermore, they can help reduce the number of grants and loans given to businesses to attract investment, a practice that has faced recurrent scrutiny as a form of ‘corporate welfare’ that picks winners and losers. Other than the geographic requirements, Opportunity Zones do not discriminate based on the company or project, therefore making them an equitable, sustainable policy solution.