Capital Gains Tax On Primary Residence Is Coming

Toronto Politics | August 6, 2020


My goodness, remember this blog post?

The Friday Rant: When Will People Say “Enough?”

That was March of 2019, yet it feels like yesterday.

95 comments from readers ensued, and they were mixed, to say the least.  Then again, I suppose choosing a feature photo of the Titanic sinking into the abyss didn’t help the snark-level I demonstrated that day.

My rant began with my disdain for people who are willfully uninformed, then segued into my mistrust of government, and finally landed on a potential new tax being floated.

Yep, you guessed it: the capital gains tax on a primary residence.

The government pushed back on the idea that this tax was even being considered, but we all know that it was.  Justin Trudeau said in a Tweet, “To be clear: We will NOT put a 50% tax on the sale of your home,” and called Andrew Sheer a liar in the process.  However, with what I know about government, that doesn’t mean that a 49% tax wouldn’t be considered…

For those who don’t remember, this was the un-proposed but leaked-proposal tax scheme:

50% tax on any profits after one year
25% tax on any profits after two years
15% tax on any profits after three years
10% tax on any profits after four years
5% tax on any profits after five years

As I wrote back in 2019, I fail to see how somebody owning a property for five years is “speculating,” and perhaps this wasn’t so much of a “speculation tax” but rather simply a revenue-generating tax that was arbitrary and vague enough to pass the smell test.

This story was somewhat quiet for the remainder of 2019 and into 2020.  But after the pandemic began, and after Justin Trudeau began to give daily press-conferences from his cottage, handing out billions and billions of dollars in “relief” to every person and every cause, it became quite apparent that the government would have to find a way to pay for all of this.

How do you pay for money given to taxpayers?

Well, by taxing those same taxpayers!

Give with one hand, and take from the other, with no guarantee that those who are given, are taken from.  In fact, it usually works the other way around.

Yeah, I know, I sure love to bitch about government, right?  And taxes!

But this time around, the conversation affects each and every person reading this blog.  Because this time around, the government is, in my opinion, going to take from everybody!

I don’t know if any of you are regular subscribers to Blacklock’s Reporter, which is an online political newspaper, but last month, this site reported that the CMHC had provided a $250,000 grant to the UBC’s “School of Population & Public Health” (I can’t believe that’s a thing??) to research Canada’s first home “equity” tax.

These funds were given through an institution called “Generation Squeeze.”

The federal government denied the tax, or the research on the tax, but it didn’t stop people like me, and media people who think like me, from believing otherwise.

July 21st, 2020: “Liberals Deny Tax On Home Sales – Honest!”

That’s just one of the responses, and yes, it’s from the Toronto Sun, which many people discount.  But I don’t know who would deny the content therein.

If you want a more respected opinion, then fine.  This was written by Murtaza Haider & Stephen Moranis, who are a calming voice of reason on real estate in 2020:

July 24th, 2020: “Why Capital Gains Tax On Principal Residences Is Still A Bad Idea”

While I may be more mistrusting of government than many of you, I simply refuse to believe that a $250,000 grant to an organization who, in 2019, called homeowners in Canada, “lottery winners,” has nothing to do with researching a home equity or capital gains tax on one’s primary residence.

A near $1 Trillion debt also does not help the idea that the tax isn’t being floated.

What is Generation Squeeze?

Their website features a stock photo of a young hipster (beard, mustache, hair long on top and short on the sides), pouting appropriately, with the tagline: “Are you Feeling Squeezed?”

The options for said squeeze rotate between, “….by starting a family?” to “saving for retirement?” to “the cost of housing?” and more.

“Generation Squeeze is a voice for young Canadians – in politics, in the market, backed by cutting edge research.  Together, we’re squeezing back!”

Oh, great.

This sounds like a decade ago when one of my 17-year-old baseball kids, in response to why he doesn’t respect his parents, said, “Because kids today fight back!”  Fight back against, what, exactly?  The parents working hard, generating income, putting food on the table, etc.

I understand that “fight back” as much as this “squeeze back,” only that initial fight wasn’t provided a $250,000 grant from a government that gives out $912 Million to family friends, but that’s a topic for another day…

So before you run out of criticisms for what I just wrote above, I’d like to double down.

Generation Squeeze is being run by a UBC professor named Paul Kershaw, who I can tell I don’t like simply from his photo.  Yes, I judge a book by its cover, but in the words of Brian Fantana, “Fifty percent of the time, it works every time.”  I’ve grown to believe that many university professors have no real-world experience, and merely seek to indoctrinate impressionable children all day, with no fear of reprisal, because they are tenured.  They work eight months per year, twenty hours per week, and thus have lots of time to look for problems where others wouldn’t find any.

This particular professor could be described as “progressive,” if you’re an optimist, or “left-leaning,” if you’re a realist:

Kershaw’s work has contributed directly to historic investments in BC child care, the first ever tax on empty homes in North America, eliminating limitless rent increases in Ontario for units built before 2019, changes to municipal zoning, approval of dozens of new rental housing developments facing NIMBY’ism, a shift in BC to reduce income taxes by taxing unhealthy home prices more, and the first-ever reporting of age trends in federal public finance.

I’m a jerk, right?

Well, I’m obviously not pointing out the investments in childcare with snark, but rather the points that follow, obviously signaling that this person is not a huge proponent of real estate as a means of creating wealth.

I mean, what are “unhealthy home prices,” and why does this one man get to define what is or isn’t healthy?

In any event, tell me that he’s forward-thinking and progressive, but I see a person with an axe to grind against home-owners.  So what then, do we make of the federal government’s decision to give this man and his think-tank $250,000 to “investigate?”

Here are two quotes from Generation Squeeze:

“Many Canadians bank on profits from home ownership to secure their financial future and gain wealth.”

“We need to make it so that no Canadian relies on gains in housing wealth to feel secure, and we need to rethink policies that by encouraging the financialization of housing push the cost to buy or rent a home even further out of reach.”

That’s a very, very nice and diplomatic way of saying what they really think and feel, isn’t it?

And what about Paul Kershaw’s 2019 Op-Ed in the Globe & Mail?

“The Federal Budget’s Attempt To Address Housing Affordability Is Brave, But Not Brave Enough”

How about these quotes:

“Canada won’t meet CMHC’s affordability goal in 2030 unless home prices fall and/or young people’s incomes grow at rates we haven’t seen for decades.”

So this man is proposing we take action to ensure real estate prices fall?  This is who was just given a $250,000 grant from the CMHC?

“This requires a shift by raising taxes on unhealthy home values to slow down prices, and pay for tax cuts on regular incomes.”

Ah yes, the old “More taxes is the answer” viewpoint.

As I said previously, who defines “unhealthy?”

Does a $6,000,000 house in Rosdeale represent an “unhealthy” price, or is this simply a function of supply and demand?  Maybe Rosedale is a beautiful, historic, affluent, safe area that’s close to downtown, and where most everybody would want to own?  Maybe that’s why prices are high?

This is dangerous thinking.  The idea that one person, or think-tank, or wing of government can ignore the time-tested forces of supply and demand and define the “health” of prices in a market is a slippery slope.

But I fear we can’t stop the momentum behind this.

I firmly believe that Justin Trudeau saw the pandemic as an opportunity to buy votes, as all politicians are accustomed to doing when in power (or campaigning), regardless of party.  The money handed out from the steps of Justin’s cottage every single day for months on end was well beyond pandemic-related, and now that the government is presumably finished, they have to find a way to pay for all of this.

Raising HST from 13% to 15% is an obvious solution, but I think that would affect everybody equally, and equality isn’t what governments truly strive for.  More to the point, the willfully-uninformed would notice this, but they might not notice a new capital gains tax.

A capital gains tax on primary residences could raise hundreds of billions of dollars, depending, of course, on how it’s implemented.  I can’t fathom the discussions around when/what/where/why/how, and yet I don’t think the government would simply declare, “Any primary residence purchased from January 1st, 2021, onward, will be eligible for a capital gain.”

Why?

Because that wouldn’t raise enough money.  And it’s the least unfair implementation of an incredibly unfair policy, and I hold the government to a much, much lower standard when it comes to taking people’s money.

I don’t see any way in which some form of capital gains tax on a primary residence does not find its way into the tax code by the end of next year.  Unless, of course, Prime Minister Trudeau is no longer the Prime Minister?

Nah.  That will never happen.  He’ll do twelve years, mark my words now, just as you’re marking my words about this tax.

Alright, I got that out of my system.

On to something more productive: a great article in the Financial Post this week on this subject:

“Government Is Why Housing In Canada Is Unaffordable And More Taxes Won’t Help”

This was written by Jasmine Moulton, who is the Ontario director of the Canadian Taxpayer’s Federation.

The sub-heading is beautiful:

Opinion: A home equity tax would be but the latest example of politicians using housing as their personal ATM

But the article itself, for those of you that subscribe and can read it, is even more beautiful.

My favourite parts:

But more taxes won’t increase affordability. If the government really wants to know why housing is unaffordable, it could have saved the $250,000 and looked in the mirror. Governments at all levels drive up the cost of housing in two ways: by restricting the housing supply and by increasing housing costs through taxes and fees.

 

Instead of addressing their own regulations that suffocate supply, governments have instead focused on red-herring policies to suppress demand, such as targeting foreign buyers. Ontario’s non-resident speculation tax collected a meagre 156 payments in Toronto in the first quarter of 2019, this in a city that expects to grow by 41,000 people per year. Foreign buyers are a drop in the bucket.

 

Governments could increase supply by acting promptly and reasonably on zoning matters. In Ontario, re-zoning can take up to seven years and there’s currently a lengthy backlog, including 100,000 units held up in Toronto alone.

 

Governments also drive up the cost of housing with taxes and fees. The Building Industry and Land Association found that some development charges in the Greater Toronto Area had increased by up to 878 per cent since 2004. That adds a cost of $164,500 to the average condo in new high-rise developments in Toronto.

As a writer, I can tell you that one of the most frustrating and exciting aspects of literature is when you see something that another person wrote, and wished you had written it yourself.

This is brilliant.  It’s just so undeniably true.

And it’ll be great fodder in a few years when the capital gains tax is in place, and we all look back at articles like this, from people who have such rational thoughts, and wonder, “Why did we end up with this tax?”

You could have 12,000,000 Canadians sign a petition against this tax, and it wouldn’t matter.  Governments do what they want.

The tax is coming, folks.  Maybe not the whole shebang, but or not all at once, but it’s coming.  Just remember you read it here in August of 2020…

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123 Comments

  1. jeanmarc

    at 7:57 am

    David, regardless of this tax coming, selfie boy does NOT get my vote next election. Unfortunately, we don’t have a decent government party to choose from. They are all useless. Lived here for almost 45 years and have followed the politics. Basically, you just remember who screwed you last when it comes to political parties who to vote for come the next election.

    1. Appraiser

      at 8:01 am

      It has been my experience that most elections are a case of voting somebody out, not in.

      1. jeanmarc

        at 8:06 am

        Yes, that is what i mean. Vote someone else so selfie boy does not get back in.

        1. Appraiser

          at 8:25 am

          To be clear.

          The Prime Minister has his detractors, all of them do. I’m not one of them.

          1. Crofty

            at 3:35 pm

            Wow, three mentions of the meaningless (not to mention juvenile) epithet “selfie boy” within an hour. So glad to see intelligent, well-reasoned political analysis on a RE blog.

    2. cyber

      at 11:32 am

      This approach from the voters, in line with the unofficial country motto of “peace, order and good government”, may be more boring but is certainly better than the partisan fervour and resulting mess south of the border.

      I’d still much rather cast the vote unenthusiastically, either for incumbent because they’re doing a good enough job, or for whoever is most likely to unseat them, then post election have whatever (most likely) minority government results make compromises with other parties on key issues in a more civil and democratic manner.

    3. Lj

      at 1:20 am

      I don’t mind 50% speculation tax if that helps tame this crazy RE prices. First year 50 % second 40%. Then it’s ok. But people
      Will Still Find a way around the loopholes. At least this can help kill foreign investors eating up out supply RE. 5% after 5 yrs is not that bad especially when most home buyers at least keep a house that long to sell and move up or down.

  2. Appraiser

    at 7:59 am

    Is nothing sacrosanct?

    I’m afraid I don’t share your level of certainty with respect to the inevitability of this tax, David.

    The topic is too controversial.

    Are they starting the conversation – yup.

    Is it slippery slope – maybe.

    One way that politicians might avoid this politically nuclear issue, is to announce that the principal residence exemption will remain part of the income tax act, but that an increase in capital gains taxes on tertiary properties owned by the same tax payer is to be implemented.

    A political win / win?

    1. Appraiser

      at 4:02 pm

      Theoretically such a tax does run the risk of being self-defeating. There is the fact that taxing a principal residence may deter or delay some people from selling, thus reducing supply.

      1. Frank

        at 9:13 pm

        Wow, think much? Supply in housing is something new, not just traded.

    2. Jimbo

      at 4:19 pm

      I don’t think they go with or call it a capital gains tax. First reason is it sounds bad and people look at the 50% figure and freak out. They don’t realise or want to take the time to learn that it is 50% of the gain is taxed, not the whole gain taxed at 50%. The second reason is it is not as productive when the rise in value slows or if someone turns around and sells after 1 year.
      I think they go with a 5% flat tax on total sale paid by seller. The percentage number is lower, the amount of money is more significant than the capital gains tax and they can reconcile that with the voters as people pay 3-5% to a realtor already.
      Kind of the same logic with the double LTT.
      The advantage they get is the tax is tied to the velocity of the sales not the price appreciation.
      Now I also think of they do go capital gains route the 5% will be the minimum for all sales not just on sales before year six.

    3. Ben Chen

      at 10:55 am

      I think what should be done here is to tax heavily on investment properties: people who is trying to buy multiple properties after owning a primary residence already. If the economy is treating housing as essential goods, one property one person, we will see fair housing price across.

      1. Ahamad Quasimi

        at 1:35 pm

        Take some Basic Economics course before writing a childish opinion.

  3. Katie

    at 8:13 am

    I’m still renting unfortunately. This is beyond infuriating to think that everybody but me has benefitted from the tax free capital gain and when I finally am able to buy, I could be taxed on the profit. Where is this money going anyways??

    1. Professional Shanker

      at 9:21 am

      This is another reason why I don’t believe this tax will be implemented, even non owners are against it, it would be political suicide.

      The money will go into the black hole, never to return to you in a truly tangible fashion ever again!

      1. Kyle

        at 9:49 am

        Nor will this tax improve “affordability”. Quite the opposite, the longer people hold on to their homes, the less supply there will be on the resale market

        If anything it only punishes normal people who move in less than 5 years due to unforeseen cicumstances (e.g. job relocation, divorce, financial hardship, home no longer suits their needs, etc). The people who speculate and flip houses, have many ways to show 0 profit on their properties, and will end up paying none of this tax.

        This tax is a patently stupid idea.

    2. Ryanp

      at 6:10 pm

      The cmhc mortgage insurance which allows so little money required for a down payment and historically low interest rates are the main drivers of high house prices. Add to that population increase, to much cost and red tape to develop and then hgtv shows telling everyone they need to flip houses to live the high life. Makes one heck of a buyer driven market. If you want to talk supply and demand. Demand for houses sure drops if everyone has to learn to save 20% for a down payment first.

  4. Appraiser

    at 8:38 am

    Well now it’s official: TRREB data for July:

    Sales up +29.5%

    New Listings up +24.7%

    Active Listings down -16.3%

    Average Price up 16.9%

    Sales outpacing new listings, inventory down, no slow down in demand, interest rates dropping.

    All the ingredients of a 9% – 18% crash in house prices are clearly evident.

    1. Appraiser

      at 8:41 am

      P.S. Forgot to mention.

      New official ALL-TIME high average price of $943,710.

      1. jeanmarc

        at 8:48 am

        Looks like outside the Toronto area is where the gains are the highest.

        TRREB says low-rise homes, especially outside the downtown core, led the upward trend, with overall prices jumping most in Durham, Orangeville and South Simcoe county.

        1. jeanmarc

          at 9:04 am

          I don’t want to throw water on the fire, but wait until all the deferred mortgages are up later this year into early next year. And a possible 2nd wave. That will be a better gauge of where the market will be heading. Right now, it’s playing catch up since there was no spring RE market.

          1. Appraiser

            at 9:47 am

            HE WHO HESITATES IS LOST – “Swift and resolute action leads to success; self-doubt is a prelude to disaster…”

          2. jeanmarc

            at 9:57 am

            Love those sayings. Doesn’t pertain to me. I am not in the market for a home. Just sitting back and watching all the RE action in play.

  5. Sirgruper

    at 9:17 am

    Look for a capital gains tax that seems reasonable to the average voter and that ignores inflation. My bet is a lifetime exemption on capital gains on the sale of a principal residence of say $500,000.00. Once you hit that gain in your or your spouses lifetime, that it’s simply a regular capital gain. Would hit high value homes immediately but spare lower priced homes at first. Much like land transfer tax that were never indexed to inflation.

  6. Clifford

    at 9:21 am

    Politics… gotta love it. Uninformed people voting for what they think is their best interest…when in fact it’s the opposite. Reminds me of the poor MAGAs voting for Trump while losing jobs, catching COVID and seeing their employers make money hand over fist.

    I see similar situation with the priced out, Trudeau-bots that vote for him because they feel government help and intervention will bring down home prices. Just the opposite. Like David I feel this is coming. Some say it’s political suicide but people seriously underestimate the power that the uninformed have. What this does is increase home prices over the long term and the same people complaining about affordability will be….complaining about it again when they realize home prices have skyrocketed as supply has decreased sharply.

    I have 0 faith in politicians and 0 faith in the voting public.

    1. Jason H

      at 12:10 pm

      I think we have to say it like it is; envy will drive a tax that will ultimately be turned against them.

  7. Chris

    at 9:50 am

    David, Andrew Coyne had a good article in the Globe and Mail a little while back on this topic.

    “It won’t be popular, but we should scrap the homeowner tax break

    The most predictable objection – that taxing housing like other investments would make home ownership more expensive, pushing the Canadian dream further out of reach – is the easiest to dispose of. A good part of the value of the tax preference is capitalized into the price of the house; take it away, and housing prices would drop overnight. That’s a one-time loss for those looking to sell, but a gain for those looking to buy, especially first-timers.”

    https://www.theglobeandmail.com/opinion/article-it-wont-be-popular-but-we-should-scrap-the-homeowner-tax-break/

    I also believe that government is seriously looking at this as an option. I mentioned this in a comment about a month ago.

    But if we can all agree that government will need to raise tax revenue, what other options do they have?

    Raising HST would be regressive, hitting lower income earners hardest. Income taxes are very high and have been raised recently, at least on higher earners. Corporate taxes are already above those in the USA.

    I think the best compromise would be in line with what Sigruper has stated. There is a lifetime maximum exemption from capital gains on your principal residence, similar to the capital gains exemption on the shares of a small business.

    Your principal residence is the only vehicle that seems to provide for essentially unlimited tax sheltering ability, through no contribution limits akin to a TFSA/RRSP, and no tax exemption limits akin to the small business capital gains exemption.

    If someone has a compelling reason as to why this is a bad idea, I’m all ears. But so far, I haven’t heard one.

    1. Shamrock

      at 6:53 pm

      With a lifetime limit, people who live in cheaper areas of the country such as the Atlantic regions are less likely to exceed the limit than someone who lives in expensive places like Toronto and Vancouver where a 500k gain for example, has happened regularly. This could tie people to the home they’re in.

      Also places like Toronto and Vancouver have people moving in continuously and demand means prices aren’t likely to drop. It can end up meaning that a homeowner who wants to move up may be unable to do so if they live in an expensive city and the cost to sell and buy includes a cap gains tax on top of property transfer tax and realtor fees.

      Also the lifetime limit doesn’t factor in inflation. If you buy a house for 100k and in 20 years that 100k is now the equivalent of 300k, what is the cost of the house?

      I don’t agree with taxing principal residences. We already have tax rules for speculators, we just need to stop being Canadian and enforce them.

      1. Chris

        at 8:35 pm

        Lifetime limit could be indexed to inflation, similar to the small business capital gains exemption.

        Yes, it would definitely have more of an impact in hotter housing markets than in cooler ones. It would also mean that you earn less profit when you sell. But if I own other assets and want to sell them, government usually taxes my capital gains on them, which could make me unable to do what I want. I don’t really view that as a compelling argument, because we could theoretically extend that to any and all taxes; if income taxes, corporate taxes, consumption taxes, etc., were lower, I would be able to do more with my money, and wouldn’t be prevented from moving up, buying a boat, taking a vacation, etc.

        I do think we should enforce the taxes we have more stringently, but that seems like it will be insufficient to make even a dent in the deficits we’re running. If you don’t think the elimination of the capital gains tax exemption is a good idea, what taxes would you propose?

        1. Sean

          at 12:22 am

          I would make all winnings such as lotto etc taxable.
          I think the government should crack down on overseas income such as the Panama Papers where we are about the only country that hasn’t really recovered much from it.
          I would increase GST.
          I would get the pipeline from Alberta to the coast built. That would generate much revenue.
          I would look to emulate what Chretien and Martin did in the early/mid 90’s to reduce spending. We don’t just have to raise more revenue, we can also cut spending.
          I would eliminate the equalization program. Some Atlantic provinces are incentivized not to develop their economy and natural resources at risk of losing payments. Let’s encourage them to get innovative. If Quebec wants to separate, good riddance. The rest of Canada spends a fortune pandering to Quebec above and beyond the equalization program.

          To help with house prices, ban non-residents from buying homes in Canada. Slow the rate of immigration. Currently we have about 330k immigrants a year, most of whom head to the big cities. Reduce it to 100k and it will be easier to absorb the numbers in terms of housing.

          1. Chris

            at 10:59 am

            Equalization payments, oil pipelines, Quebec separatism, are all wildly political issues and not likely to change soon.

            Taxing lottery winnings, sure, but realistically how much is that going to bring in?

            Raising HST is regressive and will increase the burden on the lowest earning Canadians. Doubt that they look to this option.

            Agreed that there should be more enforcement of tax evasion. Immigration is also very likely to decrease as a result of the pandemic and increased jobless rates.

            I wouldn’t bank on spending decreasing anytime soon though. Government has rolled out an unprecedented level of fiscal stimulus, which shows no sign of slowing. So that option seems unlikely.

          2. Sean

            at 12:38 pm

            Yes, most of what I would like to see are unlikely to happen.
            I am against more taxes. We already pay about 50% of our income in taxes at one level or another. What does the government do with this? It wastes a tremendous amount of it. Trudeau is exceptional at wasting it. Do you really think if he gets more money he will pay down the debt? He inherited a healthy economy and still added 100 billion to the debt before COVID. If he gets more money he will just spend it. What did anyone expect from a guy who believes budgets balance themselves?

          3. Sean

            at 12:44 pm

            Also, how is raising GST regressive? The poorest can get an extra GST rebate. The richer that people are, generally the more they buy and hence pay more GST.
            The essentials in life such as rent and food (not prepared) are exempt from GST.
            If you want to save more money then spend less and you pay less tax. If instead you increase income tax, then people have to pay it regardless if they reduce spending.

          4. Crofty

            at 1:18 pm

            @Sean
            “We already pay about 50% of our income in taxes at one level or another.”

            Guess my wife and I aren’t part of “we.” Both of us are seniors, and our combined OAS/CPP is about $30,000 per year, plus each of us has a modest pension (total about $14,000). We live on about $60,000 before tax, the remainder coming from our TFSAs, which will be depleted in perhaps seven or eight years, at which point we’ll either downsize from our 416 detached house or open a HELOC. In short, we pay zero income tax, meaning that even considering HST, property tax and the like, we pay nowhere near 50% of our income in taxes. If you earn enough to pay half of it in tax, consider yourself lucky. Millions of your fellow Canadians are not so fortunate.

          5. Chris

            at 1:54 pm

            Realistically though, decreased spending is unlikely to happen, at least until after the next election. So there’s not much point in even debating it, just like there’s not much point in discussing the end of transfer payments or Quebec separatism.

            Consumption taxes are, by definition, regressive. Lower-income earners save and invest less money, so pay a larger proportion of their income towards consumption taxes.

            Even providing a greater HST rebate seems unlikely to fully offset this, and the tax would still have a decreasing impact as you moved up the income distribution. Unlikely that the liberal government opts for that, rather than a tax that targets those with higher incomes and/or greater wealth.

          6. Sean

            at 4:14 pm

            @ Chris
            “Realistically though, decreased spending is unlikely..”
            I agree. My comments weren’t what will likely happen but what I believe should happen.
            I disagree about GST being regressive. You can control to a point how much you spend on taxable goods.

            @Crofty”If you earn enough to pay half of it in tax, consider yourself lucky.” I don’t consider myself lucky to pay half of what I earn in taxes. The 50% is the average. Luck is an unearned benefit. What do you know abut me to make that statement? I work hard for my income and certainly don’t feel it is ‘luck’.

          7. Fearless Freep

            at 4:41 pm

            @Sean
            “50% is the average.”

            Source, please?

          8. Crofty

            at 4:57 pm

            @Sean
            “50% is the average.”
            @Fearless Freep
            “Source, please?”

            According to the OECD, the “tax-to-GDP ratio” in Canada was 33.0% in 2018 (the latest year for which figures are available), pretty much on par with the average ratio for all OECD countries (34.3%).

          9. Shamrock

            at 12:25 am

            @Sean
            That’s pretty scary. While not 50%, it’s not far off (44.7%) and frankly a ridiculous amount.

    2. daniel b

      at 10:42 am

      you buy a house on one side of the city for $1M, two years later you switch jobs and want to move to the other side of the city. market’s gone up 20% across the city. you sell for $1.2M, but have a $200k capital gain. Let’s say they take it at 40%. So, less the clawback you’re looking at a tax bill of probably $32k. Could result in having to basically move down in house when you move.

      The one idea lost in the whole thing, is that capital gains in housing are only real equity if you plan on downsizing or exiting the housing market because you need somewhere to leave.

      Not even saying i’m opposed to the idea, just pointing out what i think is the main problem with the tax.

    3. Donna W

      at 4:14 pm

      A great many people have relied on the capital gains exemption for principal residence in their retirement planning with their plan including sale of the residence on retirement and, at least in part, living on the income generating by the net sale proceeds. But for this, they would have gone about their investments and other financial planning differently. To ‘pull the rug out’ from under persons nearing retirement who have planned on this basis is incredibly unfair and would have significant long term ramifications.

  8. Elle O'lelle

    at 10:16 am

    How does this work with renovations? If I put $60,000 into my house, so I get a capital cost allowance?

    What about depreciation?

    And what about inflation? I will be taxed on inflation? How the fuck does that help?

    And do I get to now deduct morgtage interest?

    If we are going to treat a primary residence as an investment, it has to be BOTH sides of the income/loss sheet. Not just buy for x sell for x+y and get taxed on y. Because that would just be punitive.

    1. Chris

      at 10:23 am

      If we were to tax capital gains like other investments, yes, presumably you would generate CCA for renovations and for the building, but not the land. You’d also presumably be able to deduct mortgage interest.

      As for being taxed on inflation, every investment is taxed on this. If I buy a business and hold it for 20 years, and the value increases only by inflation, I’m still taxed on the capital gain when I sell, despite having earned only a nominal return, with no real gain. Thus, taxed on inflation.

      I agree with you though, if they were to implement capital gains on your principal residence, it would need to incorporate more than just applying tax to gain, and would have to take consideration of your expenses and ACB.

      1. Bal

        at 10:42 am

        There should not be any tax to the primary residence…..but they should tax heavily to flipping….becuase whatever capital gain right now it is not working…..

        1. Chris

          at 11:10 am

          Why do you think there shouldn’t be any tax on principal residences?

          1. Bal

            at 7:48 pm

            Simple because all I have is the primary residence….i don’t have any investment property…so that why I am saying why kill the middle.class…..tax to rich and kill them….lol…i am already paying enough property tax….

          2. Chris

            at 8:16 pm

            Hate to break it to you, Bal, but property taxes are almost definitely going up as well. Municipalities are in pretty dire financial straits. And while I get that you don’t want to be taxed more, I think we’re past that point. With how much spending is going on, seems inevitable that government will be rolling out more taxes.

      2. Thomas

        at 1:44 pm

        I favor this tax and it should have been in place a long time ago. I am afraid that introducing it now is likely to starve the supply and drive the prices up again.

        1. Chris

          at 2:31 pm

          May impact supply if people avoid selling to avoid triggering the capital gain. However, I don’t think it is likely to drive prices up. As Coyne discusses in his G&M article, part of home prices are predicated on the expectation of exemption from capital gains. Take away the exemption and prices are more likely to decline than rise.

  9. Libertarian

    at 10:45 am

    Good rant David!

    I agree 100%, which is why I wrote in a comment on here after Trudeau got elected so many years ago that this tax was coming. I’m too lazy to go find that comment, but it’s there somewhere. COVID has guaranteed that’s it’s coming.

  10. J

    at 11:13 am

    While the proposed 50% inclusion rate figure for selling a home within 1 year jumps off the page, when you crunch the numbers the capital gains taxes are rather minuscule compared to other closing/transactional costs. If my understanding is correct this is not a tax rate, but rather a capital gains inclusion rate that gets multiplied with your marginal tax rate (like how capital gains work in other cases).

    Taking the average June GTA price of $930,869, assuming the highest marginal tax rate of 53.53% and 5% growth in prices going forward, the amount of tax paid would be as follows:

    1 year: $12,457
    2 years: $12,769
    3 years: $11,782
    4 years: $10,739
    5 years: $6,883
    6 years or more: $0

    I’m no fan of more taxes, but let’s put this in perspective. The real estate commission on $930,869 is $53,000 and land transfer taxes are $30,000.

    If you buy a home with the intention of only owning it for a year and think nothing of paying $83,000 in closing/transactional costs (plus other costs such as legal fees, home inspection, CMHC insurance, mortgage breakage fees, title insurance, etc.) think of the extra $12k as a stupidity tax. And that’s only incurred if the house appreciates. If the house value stays the same then you pay nothing (not so for the other costs).

    I’m not trying to advocate for yet another tax but we need to put this into perspective. Even without a capital gains tax, it doesn’t make much sense to buy unless you’re planning to stay put for 10+ years given that the closing costs are equivalent to several years of rent.

    1. Jimbo

      at 9:42 am

      This is why it will be a flat tax on the sale of all properties. They need the money, they don’t care about the residual value of real estate.

      If they cared about the residual value of real estate and its use as a retirement vehicle they would have protected pension plans rather than let companies pillage what was there…

  11. Joel

    at 11:39 am

    It wouldn’t be a tax, but rather the removal of a tax free exemption.

    My idea for it would be that you get one tax free primary residence exemption every 10 years. Move more than that pay the full 50% on your gains.

    1. Sean

      at 7:14 pm

      How is it not a tax? That the government takes a part of your financial gain makes it a tax.

  12. L Martin

    at 11:47 am

    I agree. It’s low hanging fruit and with inequality increasing, with government bailouts/QE continuing to be the norm, the majority of the population would support measures like this.

    1. Bradley

      at 9:18 pm

      Income inequality hasn’t budged in 20 years. Look at StatsCan if you don’t believe me. Our Gini coefficient has remained flat since the late ’90s.

      Granted, perhaps things will change with the pandemic, but I suspect Canadians are looking at US stats and assuming the same trends are evident here. They’re not.

  13. Ed

    at 11:59 am

    I’m with David.
    If there has to be a tax increase / new tax I am all for raising the GST a couple of points and in turn raise the GST rebate for low income earners.

    1. Crofty

      at 1:22 pm

      Agreed. Or they could increase the capital gains inclusion rate to 75% like it was way back in the dark days of the 1990s.

    2. Condodweller

      at 1:02 am

      I would agree with this in principle the only problem is that any rebate the government would give, would be peanuts and in no way be sufficient to offset the extra tax. This is why I believe that any extra tax should be income tested.

  14. M

    at 12:24 pm

    CMHC can do all the research they want, but I really doubt the LPC is telling them to look into it. There’s no political will to do it, nor is there a fiscal reason to either (just yet). I think the most under looked consequence of the pandemic is its effect on central bank policy. Is the nature of the monetary system going through an ideological shift towards a more MMT model, or is it doomed to collapse under all the newly created debt? Simply put, why would the liberals implement a tax that would upset 2/3 the population, when they have the appear to have the ability to create the all the money they need, and inflation (if you trust stats can data) appears to be UNDER target? Are they looking into it? Perhaps, but more likely just CMHC exploring potential options that have 0% chance of becoming actual policy in the short-medium term.

  15. Kyle

    at 2:26 pm

    I think they’ll have to pry this tax from 67% of Canadians’ cold dead hands. A paid-off principal residence is and always has been a cornerstone of Canadian retirement plans. Good luck trying to take that away.

    1. Chris

      at 2:49 pm

      The pandemic provides them with the perfect cover to do exactly this. Trudeau can wax poetic about how the wealthiest Canadians are being asked to contribute so that those with less were not left behind during the economic upheaval of the pandemic, or something along those lines.

      And don’t forget, only 33.12% of Canadians voted for Trudeau in 2019. So alienating whatever proportion of the 67% of Canadian homeowners that would be livid about this may be a risk they’re willing to take.

    2. CM

      at 2:50 pm

      I’d agree, let alone all the private retirement homes that are funded from PR sales.

    3. J

      at 3:07 pm

      Home equity is the cornerstone of Canadian retirement plans? Are you referring to the growing popularity of reverse mortgages?

      1. Kyle

        at 9:38 pm

        Referring to home equity in general. Whether someone plans on using a RAM, downsizing or just aging in place knowing their costs are fixed and their equity is there if they need it; a paid off principal residence is a cornerstone of their retirement plans.

        1. Jimbo

          at 9:44 am

          What happens to HELOC limits if there is a tax on sale, do they lower your retirement nest egg by 20% without a sale? Would that even make a difference?

        2. J

          at 9:59 am

          1. Reverse mortgages: they will eat your cherished home equity alive. CHIP’s reverse mortgage rates are around 2-3x the prevailing mortgage rate right now (https://www.chip.ca/reverse-mortgage-rates/). Also, the terms are up to 5 years so your survival after that is hinged on which direction interest rates go. Finally, they give you a lump sum payment instead of monthly cash flow, which is not ideal if your goal is to cover daily living expenses. They’re really more suitable to pay off other forms of debt.

          2. Downsizing: many people find that downsizing is problematic unless done to the extreme (e.g., moving from Toronto to Trois Riviers). With transaction costs eating away about 10% of the home value coupled with a small price differential, it’s often just not worth it (in many instances the per square foot price of a Toronto condo can be double that of a house – not exactly a great value proposition). Also, there’s no guarantee that the market will be liquid when you need it to be.

          3. Aging in place: home ownership costs are ever increasing and hardly predictable. The costs of maintenance, property taxes, insurance and utilities will continue to climb enormously in the decades to come if for no other reason than inflationary pressures (even if you have a large mortgage today these costs likely already dwarf your mortgage interest costs). None of these costs are fixed. If you plan on staying in your home after retirement, you either need an excellent pension or a big fat nest egg. CPP isn’t going to cover it.

          It would be easy enough for me not to worry about others that fail at properly investing for retirement. But unfortunately that becomes my problem too as a result of future taxes. The reasons we now need CERB and have a a $343B deficit this year are largely tied to how little people have in their bank and brokerage accounts.

          1. Kyle

            at 10:39 am

            If your point is that home equity has limitations, that’s fine, but that’s really a different discussion. I’m not advocating using a RAM, nor am i saying that the other strategies alone are limitless in their ability to provide retirement freedom. My point is that home owners view their home equity as a nest egg, and anyone coming after it is going to be in for a fight.

          2. Appraiser

            at 10:54 am

            A cornerstone is not the only stone. Some prudent savers also have RRSP’s, TFSA’s and boat loads of boring GIC’s – along with investment properties.

            Not all issues are black and white.

          3. J

            at 10:58 am

            I do agree that a lot of people do view their home as a nest egg, but I would not recommend that. I certainly don’t see my home that way.

            You can retire comfortably with investments/pension but without home equity. But you can’t retire comfortably with home equity but little investments/pension. Hence home equity cannot be a cornerstone of a good retirement plan.

          4. Kyle

            at 11:11 pm

            @J

            I’m not sure i see your point. At the end of the day if someone has $1M in home equity vs someone has $1M in investment equity, i don’t see the difference. There’s nothing stopping the person from selling their home and investing the proceeds in investments and renting throughout their retirement, putting them at more or less the same place.

            However one observation i’ve made is that retirement aged homeowners in Toronto will very commonly have well over $1M in home equity and additionally (as Appraiser mentioned) other financial investments as part of their nest egg. Meanwhile i have never ever met or even heard of a retirement aged lifelong renter who has anywhere close to $1M in any form of equity. The reality is, buying a home more or less fixes ones costs over the next 25 years after which they’re free and clear, allowing them to also accumulate a portfolio of other assets over time. In contrast those that never buy a home end up paying rent (that rises each year) every year of their adult life making it very difficult to ever accumulate any form of equity by the time they retire.

          5. J G

            at 1:59 pm

            Home Equity definitely has limitations. The main one being carrying cost (Property Tax, Insurance, Repairs). Want to do renovations? Labour cost is a lot more these days in the GTA compared to before. I see many houses owned by old couples who are cash strapped that they can’t even do renos.

            Want to downsize or sell your investment property? Knock off 5% for the RE agents first. Then add the cost of moving and buying a smaller house, including Land Transfer Tax.

            Funny how the bulls and RE people never mention the above points.

            I manage my parent’s retirement fund, and let me tell you – it sure is a lot easier to do everything in front of a computer. Dividends are deposited automatically. Growth has been amazing, even ETFs.

            Appraiser will say – what about a 50% crash that comes once in 10 years? Sure, no problem – let me just use that opportunity to make more money 🙂

          6. J

            at 12:42 pm

            @Kyle if you think home ownership are fixed and predicable then you’re in for one hell of a nasty surprise. In 10-30 years do you think your property taxes, maintenance costs, utilities and insurance will be the same as today? Heck, let’s check back on this within a couple of years.

            Your anecdotal observation that retired folks with homes also have large investment portfolios proves my points above. If they didn’t have large nest eggs they would be forced to vacate their homes. Further, their large nest eggs are due to them earning, saving and investment – not due to having home equity (excluding the small percentage that rolled the dice on the Smith maneover).

            Your analysis that home owners have larger investment portfolios than renters is misguided. While this fact is true, it is a result in correlation rather than causation.

            Renters with high net worths do exist – I know this because I used to be one up until last year.

            To add further to my points, having a more valuable paid-off home not only doesn’t replace an investment portfolio, it actually results in the need for a larger investment portfolio. The ownership costs of a larger, more expensive home and proportionally higher.

          7. Kyle

            at 6:13 pm

            @J

            We all know that home ownership costs aren’t entirely fixed, which is why i said “more or less”, but you’ve lost the point. When you buy a home, the purchase price is paid out over a 25 year period, your mortgage payment will fluctuate with interest rates, that’s it. Then after 25 years it ends. All those rising non-mortgage costs that you speak of (i.e. property tax, utilities, maintenance, and insurance) are paid by both Homeowners and Renters. It’s just that Renters are paying it for their landlords (in addition to their landlord’s mortgage and a return to the Landlord on top of all that). The difference is rent rises every year and never ends, even long after the landlord’s mortgage is paid off. This is why lifelong renters never accumulate much equity, they are basically paying rising shelter costs their whole life.

          8. Kyle

            at 6:20 pm

            “Your anecdotal observation that retired folks with homes also have large investment portfolios proves my points above. If they didn’t have large nest eggs they would be forced to vacate their homes. Further, their large nest eggs are due to them earning, saving and investment – not due to having home equity (excluding the small percentage that rolled the dice on the Smith maneover).”

            You’ve misunderstood, i never said home equity is the reason homeowners can accumulate other investments. The reason is that their mortgage costs are “more or less” fixed based on the time of their purchase, and over time with increases to their income, they have more and more disposable income after paying their shelter costs to be able to invest in other investments.

          9. J

            at 8:29 pm

            @Kyle If most homeowners were shovelling large amounts of excess cash into their investment portfolios then I would say there’s no problem (but would still argue that in that case it’s their portfolios that are the cornerstone of retirement). But the reality is that 500,000 households in Canada deferred their mortgages within a couple weeks of the COVID shutdown. It’s shocking that half a million families had so little saved (or so much debt) that they couldn’t survive after missing at most a single paycheque.

            I think one thing that we are essentially debating over is the break-even point of owning vs. renting. There are calculators for this and they can yield different results depending on the assumptions you make. When I made the calculations during my own purchase based on what I feel are reasonable assumptions the results were not pretty. I’ll need to work an extra 5-10 years vs. the renting scenario to end up at the same place (the decision to buy was made primarily for non-financial reasons).

            Your point about home ownership costs being fixed might make sense in a world where mortgage costs dominated. But that just isn’t the case here and now. If you get a mortgage on a $1MM home with 20% down, 2% interest and paid over 25 years the starting monthly mortgage interest costs are a measly $1,300. The other home ownership expenses would likely already exceed this amount right off the bat, and will grow over time. Life’s expenses aren’t really fixed no matter what choices you make.

          10. Kyle

            at 9:41 pm

            “@Kyle If most homeowners were shovelling large amounts of excess cash into their investment portfolios then I would say there’s no problem (but would still argue that in that case it’s their portfolios that are the cornerstone of retirement). But the reality is that 500,000 households in Canada deferred their mortgages within a couple weeks of the COVID shutdown. It’s shocking that half a million families had so little saved (or so much debt) that they couldn’t survive after missing at most a single paycheque.”

            I still don’t think you’re seeing the point, at least not objectively anyway. Most homeowners are indeed shovelling excess money into investments. There are over 8.5 million homeowners per 2006 Stats Can data. 500,000 mortgage deferrals (many of which were Investors, second homes, and people just taking advantage of deferrals) does not disprove that.

            Here’s the data that proves it, see Chart on Page 22

            https://mortgageproscan.ca/docs/default-source/government-relations/owning-vs-renting-2018.pdf

            For those over 70, the average net worth is over 1 million for home owners, and 215K for renters.

          11. J

            at 10:12 pm

            The 500,000 mortgage deferral number is enormous when you consider that was only after a couple weeks (not sure what the latest number is). Also, only 5.7 million owner households out of 9.4 million have mortgages (https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/dt-td/Rp-eng.cfm?TABID=2&LANG=E&APATH=3&DETAIL=0&DIM=0&FL=A&FREE=0&GC=0&GK=0&GRP=1&PID=110574&PRID=10&PTYPE=109445&S=0&SHOWALL=0&SUB=0&Temporal=2017&THEME=121&VID=0&VNAMEE=&VNAMEF=). Please further consider that many of these home owners bought their homes ages time ago, during the 40-year steady decline in mortgage rates. Most people buying today would struggle to save for retirement while paying home ownership costs.

            I already mentioned this already above – the higher net worth of homeowners is a result of correlation, not causation. If you found out that Ferrari owners have an average net worth of $X million, would you think that’s because they own Ferraris or in spite of it?

          12. Kyle

            at 2:19 pm

            I already mentioned this already above – the higher net worth of homeowners is a result of correlation, not causation. If you found out that Ferrari owners have an average net worth of $X million, would you think that’s because they own Ferraris or in spite of it?”

            Please look at the data before commenting further. If you look at Table 11, you’ll see that the comparison of Renters’ vs Homeowners’ wealth is broken down by age and income quintile, so that the comparisons are apples to apples (i.e. not due to correlation and entirely due to causation).

            At each and every single age/income quintile bracket the Homeowners are significantly ahead of Renters.

            Homeowners’ wealth is at least 2x Renters at each and every single bracket. You can also see the 20-29 age bracket (i.e. those that bought most recently and at closest to todays’ prices), and again these homeowners are WAY ahead.

            Table 12 also shows the wealth difference by age/quintile of Homeowners vs Renters Ex their home equity, and again Homeowners are way out ahead.

            Sorry but the data confirms, not only does home equity contribute a great deal to one’s wealth and retirement funds, it also enables them to save and invest more than Renters, due to lower lifetime shelter costs. Frankly it’s just obvious logic, a lifetime Renter can expect to pay off his Landlords’ home more than 2 x over (in addition to carrying all of the Landlord’s other costs), so of course they’ll have way less to save and invest over their lifetime.

  16. jeanmarc

    at 3:08 pm

    J G

    If you are reading this today, Nasdaq going insane again. Hopefully you added more AAPL today. Up over 3%. Craziness.

    1. Chris

      at 3:29 pm

      Wild. The NASDAQ is up 42% YoY, S&P500 up 16%, DJI up 6% and TSX up 2%. Even VBAL, as a proxy for a moderately conservative portfolio of stocks/bonds, is up 8%, and has almost erased the entire pandemic-related decline.

      Meanwhile, people remain unemployed, businesses are shuttering, and the pandemic is showing no signs of slowing globally.

      I don’t want to be a bear on everything, and admittedly still hold most of my investment portfolio in stocks, but it’s hard not to think equity markets are overvalued, given the backdrop.

      1. jeanmarc

        at 3:35 pm

        My question would be how far can this rubber band stretch before it breaks. Unreal the amount of cheap borrowing money (robinhood, etc.) being shoved into the market. Sounds like 1999 all over again.

        1. Chris

          at 3:43 pm

          Who knows, but as I said the other day, I don’t know how anyone doesn’t realize that central bank and government monetary and fiscal stimulus are resulting in rampant asset price inflation, across all sorts of asset classes, such as stocks, bonds, gold, real estate, etc., etc.

          Great if you hold assets. Not so great if you don’t.

          1. jeanmarc

            at 3:47 pm

            Not complaining. Just concerned that it is moving way to fast UP! I rode through the dot.com bubble so I know the feeling.

          2. Chris

            at 4:16 pm

            Sure, it’s nice for our portfolios. But I’m concerned about how this exacerbates inequality, beyond what the pandemic has already done.

            You have lower income people working in service-sector jobs that have been laid off or terminated, who don’t hold any stocks, real estate or other assets, can’t pay their rent, and are generally struggling.

            Then you have higher income white-collar professionals who have remained employed, worked from home, have saved money on commuting and other expenses, and are benefiting from lower interest rates and appreciating asset values.

            As I said the other day, seems to be a great recipe for growing support for populist politicians, pandering to the “left behind”.

  17. David Chura

    at 8:51 pm

    Get rid of the bastard now
    He steals from us by donations now he wants from our hard earned money thinking WE owe him as a charity.
    He’s full of shit
    Strong words for a brain dead thief !

  18. Arman

    at 3:09 am

    Regardless who do we vote for , even the that we think is trustworthy, once he or she got elected, it will turn around and stab us from the back.
    No matter who is the prime minister Or who we elect to be our MP , they have to follow the guidelines that dictate our future and force us to obey by implementing various taxation into our system and yet make us to think that we are rich nation while we are too busy to make living and thankful to live in the land of milk and honey.

  19. Appraiser

    at 8:20 am

    Looks like our good buddy over at CMHC, Evan Siddall is quadrupling down like a degenerate gambler on his predictions.

    He tweets out that “facts matter” and backs it up with the latest TERANET data that is reliable and generally quite good, but notoriously out of date!

    He refers to data from TRREB or CREA or anyone associated with real estate as “anecdotes”

    I can’t believe this guy holds that job!

    “Housing markets are weaker than anecdotes might lead you to believe. Facts matter: the June 2020 seasonally adjusted house police index from
    @teranet_social
    would have shown a 0.1% decline. Repeat sales and raw composite indices were both down as well. https://twitter.com/ewsiddall?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

    That’s right Evan – Fake News! (old man shouts at clouds). Resign already.

    1. Clifford

      at 11:10 am

      The guy is unravelling. He should resign. He’s not right.

      1. Appraiser

        at 1:25 pm

        Let’s not forget that Ben Rabidoux is a total fan-boy of Siddall’s. But then again, just about any bear will do for Ben.

        1. Chris

          at 1:43 pm

          He really got your goat when he called you an asshole, eh? You just can’t stop talking about the guy.

          1. Appraiser

            at 6:30 pm

            Almost forgot you’re a fan-boy too.

            Remember when you said Siddall must have inside information that you trust …

            Yeah good times – what was your prediction again?

          2. Chris

            at 6:43 pm

            Looks like Ben really got under your skin. He’s living rent free in your mind.

            You honestly don’t think the head of CMHC has access to extensive data and information? Beyond what the public, realtors, banks, etc., would have access to?

            Sorry, what was your prediction for equity markets again? Something about a bull trap in mid-April?

      2. Kyle

        at 5:13 pm

        He should really just change his name to Evan Sitdown. He is displaying the same hallmarks of delusion that we have come to see from other RE bears. So obviously wrong, but can’t rebut or come up with a decent counter argument, so instead resorts to conspiracy theories.

  20. Condodweller

    at 10:29 am

    I was googling to find out how much capital gains taxes Canada collects each year because I think we need to understand the current income and how much extra could be realistically collected to counterbalance all the covid related costs.

    While I don’t have the time to search for it, most returns are explanations of how it’s calculated, I did find a paper from 2014 which seems to be a good read to understand how capital gains taxes work and their effects on our economy. Interestingly enough, it seems to argue that capital gains taxes should be lowered.

    Anyway on page 17 there is a graph that shows about 10 billion in taxes being collected from people with 250k income. If you include incomes of 100k and above these people account for 79% of the capital gains taxes collected (in 2014).

    What I would do, while keeping things fair and avoiding David’s point of taking from the very people being helped, is increase the capital gains inclusion rate from 50% back to 75% or even 100% for a predefined period of time for people earning above 100K (or a reasonable amount say 150k/300k). It will take a number of years to pay off the costs but as long as the extra income is directed directly towards the debt it should be paid off in a finite amount of time at which point it could be reduced back to 50%.

    My biggest issue with new taxes which tend to be permanent (witness income taxes to pay for the war) to pay for temporary items is that once the “debt” is paid governments will continue to collect it, and yes waste it.

    Obviously this is a brainstorm and can be tweaked to make it politically palatable but should be effective and fair.

    While taxing PR may seem like the easy solution it would be punitive for the majority of the population making less than 250k.

    1. Chris

      at 10:54 am

      How is that fair? If I start a business, grow it, employ people, innovate and develop it, and then sell it, you think the tax when I sell it should essentially be doubled? All so that the comparatively unproductive investment in residential real estate can be spared taxation?

      If anything, we should encourage investment into entrepreneurship, innovation, research, etc., rather than penalizing it further. Our economy is already overly reliant on a few sectors. Doubling down on those hardly seems wise.

      1. Thomas

        at 2:39 pm

        Exactly! Our economy is too reliant on RE! The momentum we are building in tech will quickly taper off if RE continues to rise.

        1. Chris

          at 4:02 pm

          Yep, as of 2017 real estate, rental and leasing was 13.01% of our GDP, the highest single category.

          We should be seeking to diversify our economy, in my opinion, not just continuing to rely on our old staples of real estate, resource extraction and manufacturing.

      2. Condodweller

        at 1:41 am

        BTW I forgot to include the link:
        https://www.fraserinstitute.org/sites/default/files/economic-costs-of-capital-gains-taxes-in-canada-chpt.pdf

        How is that fair? The reasons I mentioned. For one, the inclusion rate was at one point 75% therefore raising back to at least that level would not be such a stretch. Given the extraordinary circumstances, raising it higher wouldn’t be a stretch either IMO. Number two, one hand wouldn’t take away from low income people what the other has given. Three, the top 10% own 90% of capital, or something like that please don’t nit pick if I’m off a bit. Taxing them would really not have a huge impact on them in terms of lifestyle. Four, the wealthy have advisors/accountants etc. and capital gains can be timed which means they can still practice tax avoidance.

        If you need additional benefits, it wouldn’t further complicate our already over complicated tax code.

        Regarding taxing business owners, you are describing small business owners who can significantly reduce their income by various means where they would not breach the 200k income level which would trigger the higher tax (or whatever limit we decide on). If this extra tax is income tested most of the revenue would come from high net worth individuals selling significant equity holdings, and/or large businesses not small business owners.

        I have come across many small business owners who have difficulty qualifying for a mortgage because they don’t take a high enough income from their business. A lot of these people are hard working business owners such as you are referring to who don’t spend much money over and above non-discretionary items and lead modest lives.

        Investment properties are taxed therefore I don’t see RE as a low hanging fruit for taxing people’s primary residence. If anything, I would change investment income from RE to business income vs the current capital gain and tax all of it, which would have the same result as increasing the inclusion rate to 100%. Again, not at all unfair, especially if it is only for a limited time.

        The fly in the ointment of course is that unfortunately you can’t trust politicians to reverse this once the debt is reduced back to pre-covid levels. Quite the opposite, even if they increase the tax I bet you we wouldn’t see a significant reduction in our debt as they would find ways to spend the extra income.

        1. Chris

          at 9:27 am

          “Regarding taxing business owners, you are describing small business owners who can significantly reduce their income by various means where they would not breach the 200k income level which would trigger the higher tax”

          No, you’re referring to the lower corporate tax rate for Canadian controlled small businesses. That is different from capital gains tax, which is what I was referring to, and which would be impacted if the inclusion rate went from 50% to 75%.

          And none of your points about the timing of capital gains triggering, wealth inequality, etc., counter my point that increased taxation of capital gains of other investments will simply serve to further dis-incentivize the allocation of capital to them, in favour of other assets with more tax advantages statuses, like real estate.

  21. CATHERINE STEP

    at 2:37 pm

    Thank you for your comments. All the while justin has been handing out money from the cottage, I have been trying to figure out when and where it will hit my meager pocketbook. I am a retired senior with absolutely no extra cast, most months not sufficient cash if zn emergency finds me, do I have been very concerned. As well I am a long term homeowner and your comments ring very true and I have been expecting property tax increases but did not consider the capital tax situation. Thank you for opening my eyes, it makes perfect sense and as you say will just be a matter of how much. So sad.
    Thanks again.
    Cathy

  22. Sean

    at 4:12 pm

    @ Chris
    “Realistically though, decreased spending is unlikely..”
    I agree. My comments weren’t what will likely happen but what I believe should happen.
    I disagree about GST being regressive. You can control to a point how much you spend on taxable goods.

    @Crofty”If you earn enough to pay half of it in tax, consider yourself lucky.” I don’t consider myself lucky to pay half of what I earn in taxes. The 50% is the average. Luck is an unearned benefit. What do you know abut me to make that statement? I work hard for my income and certainly don’t feel it is ‘luck’.

    1. Chris

      at 4:21 pm

      Fair enough, I just prefer to debate the merits of options that are realistic and reasonably likely to occur.

      A regressive tax, by definition is one that is applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners. It is in opposition to a progressive tax, which takes a larger percentage from high-income earners. Thus a consumption tax like HST would fall into this category, as the percent HST you pay doesn’t change with your income level.

      Yes, a rebate can offset some of this. But the impact of a higher consumption tax would still decline as one moves up the income distribution, unless there was a very well crafted rebate that scaled across the entire spectrum of earners.

      1. Papa-Luke

        at 12:21 am

        The current system of taxation was originally introduced in 1917 as a temporary measure to help with Canada’s war effort. It was never intended to last longer than a couple of years. Now it has become the norm to tax us based on income and it seems that the government could not function — that is, fund the various strongholds that keep society in good working order, such as public safety, hospitals, education and infrastructure — without the revenue brought in by our income taxes. I argue, however, that the same level of revenue could be brought in by taxing us Canadians on what we buy rather than what we earn. This style of taxation has a myriad of benefits.

        For starters, a consumption tax creates fairness for all, from low-income earners right up to the most wealthy. Let’s imagine that a consumption tax, or national sales tax, is placed on all items, both large and small. More expensive items would generate more tax for the government, less expensive items would generate less tax. The wealthier the individual, the more money spent on lavish purchases would most likely be spending more in taxes each year than those who don’t earn as much.
        A SIN tax could also be added on items that are a burden to our health system, such as cigarettes, sugar, alcohol for example, just to name a few.

        Freedom, by definition, means people can and will make choices others will not like. But to encourage people to make better decisions, one does not rob them of freedom of choice. One uses persuasion, not compulsion.

        They say income taxe helps the poor.
        The saying goes like this:
        “An income tax is a classic tool for redistributing wealth. It’s usually ‘progressive, in nature, meaning that it taxes higher earners at a greater rate than lower earners. Other taxes typically don’t have that Robin Hood-like characteristic.”
        (But what about all the loopholes that our generous government have for the rich? How much money can the oligarchs save through those loopholes? That has never been put in the equation.) The oligarchs would be concerned if our government adopt a ‘Consumption tax system-only’. Why? Corporations use those tax loopholes and offshore accounts to avoid paying taxes, all the special exemptions and deductions and credits and stuff like that, would be gone.

        1. Condodweller

          at 8:13 am

          It’s the age old question of who is going to police the police.

  23. Peter Hodgson

    at 4:38 pm

    You get it ! I get it ! I my pissed off tank is full…Unfortunately , most people are sheep…asleep…I’m guilty of that…however, and you didn’t mention him but theBig Bad Wolf is out there…coming soon to a pocketbook near all of us. Just sayin’…

  24. paul t carey

    at 4:54 pm

    Anyone heard of a revolt citizens….now you know why they want to take our gun rights

    1. Crofty

      at 5:01 pm

      Wow. Apparently any blog post about taxes bring out the (right)wingnuts!

  25. Alan Turner

    at 8:07 pm

    Bring it on. In this market I wouldn’t mind crystallizing a capital loss. You can’t have one without the other.

    1. Kramer

      at 12:02 am

      1) In the USA mortgage interest is deductible. So what if i have paid more mortgage interest than Johnny Inheritance over there? how is that factored in? It’s factored in for secondary properties, because you factor in all your revenues and all your expenses including mortgage interest into your income tax return. It would have to be factored in. Good luck with that. impossible to do retroactively.

      How am i supposed to prove to the government that i spent $500k renovating my house? With receipts from Barry the framer? What about the $50k i have no receipts for? What about the $50k worth of other work done over 10-15 years ago where i have lost the receipts. This gonna be on the honour system here? I would sue the government if i was handed a tax bill on $50k because i didn’t have a receipt because when i incurred the expense i did not need to keep the receipt for any tax reasons. I would sue/appeal. And so would 5 million others. And the legal/appeal process costs would outweigh the tax revenues. Honestly, if i were to try to P/L my primary residence today, i would probably miss $25k worth of expenses… BECAUSE I HAVE NOT BEEN TOLD TO TRACK IT. Taxing that $25k is almost theft.

      This cannot be haphazardly put into practice on a retroactive basis. It is impossible. You have to implement it on a go forward basis with rules and expectations. Christ, the tax act on it has to be attached to your home purchase. There needs to be online courses on it ie “what receipts to keep, what to track, how to track.” This is predatory otherwise. predatory i say.

      1. Kramer

        at 12:09 am

        Sorry that wasn’t meant to be a direct reply to your comments

        1. Kramer

          at 12:12 am

          For christ sake, if i want to deduct childcare expenses i need a receipt…. and i know this so i keep them… and i have been required to send them in… how you gonna do this with possibly decades old property related expenses. And as we all know, there are fukkng endless expenses.

          1. Kramer

            at 12:14 am

            And by expenses in this case i mean small capital investments into your property, to maintain and/or improve.

  26. cyber

    at 5:18 pm

    Almost 70% of Canadians are homeowners, and governments like being re-elected, so PR capital gains tax is unlikely unless ‘Average Joe’ is convinced he won’t be affected (such as $500K-$1M cap on lifetime cap gain tax exemption, as Chris suggested).

    One thing I would caution against though, is blindly supporting Canadian Taxpayer Federation views on all real estate related topics. While there is certainly plenty of red tape and process inefficiencies when it comes to re-zoning and permits, the current development charge approach in the GTA is more than fair. The way charges are set is looking at net new infrastructure needed to serve specific new growth, and effectively getting the new residents to pay for incremental capex to provide the extra services. This methodology is fair to existing property owners, whose taxes do not increase in order to pay for new infrastructure for new people being added, and is also fair on a relative basis, in that generally the easier to serve urban infill developments will pay less in development charges per unit than a new suburban sprawl development.

  27. Syed

    at 1:24 am

    idk how this could be even considered rational, the capital gains tax is 25% then how could they go over that. If they do, let alone a lot of peoples retirement plans will go at dismay. ik professionals from financial world, people who life in 2 mill plus house in Toronto and they say thats their only retirement plan. which itself is stupid but wow come on your gonna screw over your own ppl for the sake of your stupid agenda & keep listening to these lazy ppl who don’t hav the discipline tto buy a house?

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