If you have ever been perplexed by the argument that it was cheaper to “tear it down and build a new one” in defence of the demolition of a cherished heritage building in your city - the answers lie hidden (and waiting to claim the next heritage victim) within the Income Tax Act (Act).

The reality is that the government favours new construction, and the Act incentivizes demolition over repair and rehabilitation.

If you want to blame someone when a masonry masterpiece is torn down in your neighbourhood and replaced with yet another “McTimmy's” or a parking lot, you can point the finger (or raise it, as you prefer) at Prime Minister R.B. Bennett, who appointed William Clifford Clark deputy minister of finance in 1932. Clark held that position until 1952, and led a group of federal bureaucrats dubbed “The Ottawa Men” that shaped a new liberal vision for Canada. Clark made many contributions over those two decades, including chairing the WWII Economic Advisory Committee, driving creation of the Bank of Canada, and leading national housing policy.

Unfortunately, Clark didn't appreciate heritage architecture.

He went on record at Dalhousie University in 1938 stating his dislike for urbanization similar to that which “catered to our forefathers prior to the Industrial Revolution.”

Clark's contempt for built-heritage was reflected in his redesign of Canada's tax system during the 1940's, with disastrous consequences for heritage conservation that endure to this day.

The revised Act contained a number of specific provisions that offered lucrative tax advantages to building owners who demolished existing buildings, rather than rehabilitated them.

Importantly, these included:

• allowable two-thirds depreciation of existing buildings over first ten years
• allowable write-off of recaptured depreciated value owing at resale by demolishing instead
• any remaining book value after depreciation (the one-third after ten years) could be “lost” upon demolition (deemed a “Terminal Loss”), and claimed as a deduction.

As adjunct professor, planning lawyer, built-heritage author Marc Denhez notes, “Bottom line: of all possible things to do with a property, the best tax treatment was reserved for demolition – better than donating the thing to charity… our system still says that, in constant dollars, an income-producing building loses half to two thirds of its value in the first decade - and it still says that buildings get “lost”, as if the poor things wandered astray.”

Over time, other levels of government have followed the federal lead.

For example, municipal property tax structures often favour parking lots. A 2002 study showed large differentials in tax assessment rates for properties of identical value, based upon type of property improvement (parking lot, apartment building, retail store, and factory). The data indicate that parking lots pay the least property tax per dollar of evaluation, 35 per cent lower than store, and 44 per cent lower than factories.

This created a financial barrier to heritage conservation that can prove difficult for even the most heritage-conscious owner to overcome.

“If you capitalized the tax savings, on converting a building to a parking lot, it was the equivalent of a grant worth hundreds of thousands of dollars, that no heritage program could ever compete with,” said Denhez.

So, you purchase a building, claim huge depreciation over ten years, and are then faced with an increased tax burden as depreciation approaches zero. If you sell, that depreciation amount will be recaptured by the taxman – however if you demolish the building, you avoid the recapture and also get to write off the remaining value of the building. Even better, if you turn it into a parking lot, your property taxes will also decrease - and you will eliminate the non-deductible costs of building repairs.

In our economy, real estate is an investment, and the profit motive governs. If tax law dictates that demolition and new construction is more profitable than rehabilitation, that is what tax accountants will advise – and most owners are not going to argue with their tax accountant.

It creates a prevailing market system dynamic strongly biased toward demolition.

The system is rigged against built-heritage conservation from square-one.

The real estate development industry in Canada arguably began when Samuel de Champlain founded the city of Quebec in 1608. It has driven our economy to a large extent ever since. Development is associated with growth and prosperity. Those countries without growth tend to offer low (or even negative) rates if return on investments – such as Switzerland, Denmark and Japan. New development creates a demand for capital.

In this sense, the Act is intended to stimulate economic growth.

In doing so however, the Act also promotes waste.

While the rhetoric of the Trudeau government is about “green” and sustainability, the taxman isn't buying it.

According to Denhez, “Until the 1990`s, Canada destroyed so many buildings that one third of Canadian landfill deposits was composed of “used construction material”. Today, it's down to about 27% (partly due to higher tipping fees), but it's still mountainous.”

There has been considerable media attention over the past four years to the controversial battle by heritage advocacy groups to protect the Chateau Laurier hotel in Ottawa from architectural desecration, by the construction of a neo-modern addition on the north face of the beloved Chateauesque style National Historic Site - with calls to the NCC and Parks Canada to take action to preserve the hotel.

It has been reported that Canada is the only developed nation on earth without meaningful federal heritage protection legislature.

Even if there were political will (which, as the Chateau Laurier debacle has proven there is not) - any such protective legislation would have to include corresponding revisions to the tax system.

Greedy developers may be easy targets for heritage advocates, but the demolition buck stops with the Canada Revenue Agency (CRA).