I’m tired.
Oh so tired.
I haven’t had a vacation since August of 2018, I’ve worked tirelessly for the first five months of our busy real estate market, and May was just brutal.
I’m not complaining. Or, at least, I shouldn’t be. The grass is always greener, and all that, especially in my business.
But I’m even more tired when I look at “the big picture.”
Look outside the walls of your cozy confines, be it your home, your cubicle, or your metaphoric circle of trust. What scares you the most? Is it global warming? Is it terrorism? Is it the economy? Is it world health? What keeps you up at night?
A lot of things keep me up at night. I read too many newspapers, and I’m far too informed as to what’s happening in the world. Maybe I’d be better off if I were like those ladies in my office, to whom I regularly explain, “You need to know what’s going on out there!” They routinely shrug, smile, and say, “That doesn’t really interest me.”
Really?
Current events? World news? Politics? The economy? You don’t feel affected by any of this?
I’m envious. Truly envious of those who bury their heads in the sand, and blindly trust whomever is at the helm of whatever, doing this, that, or the other thing, to keep the world turning.
This week, I was supremely perturbed by the idea of a “sugar sweetened beverages levy” that the Ontario Liberal MP’s have discussed as a recommendation to the federal party ahead of the upcoming election.
But this levy, or tax as it’s commonly known, paled in comparison to the bombshell that dropped on Wednesday: doing away with the federal capital gains exemption on the sale of real estate.
Liberals, defend away.
As much as I don’t want to make this about politics, since many of the people reading this are Liberals, in current, past, or permanent form, and my goal is not to offend you. We may have different choices in music, we may cheer for different sports teams, and if you like leather couches, and I prefer microfiber, I don’t want that to come between us.
But what I saw this week has upset me more than almost any other political manoeuvre, proposal, or legislation in as long as I can remember.
In case you missed it, Toronto Liberal MP, Adam Vaughan, spearheaded a new initiative that would see the profits on homes taxed at a rate of fifty percent if you were to sell this home after one year of ownership or less.
The idea alone is sickening.
The “connected dots” here are so far apart, but let’s try.
Houses are expensive -> we need more supply or less demand -> investors buy and flip houses -> tax the sale of houses owned for one-year at 50% -> thereby resulting in fewer speculators buying in the market, and “driving up” home prices.
Really?
We already have a foreign buyer’s tax. And the British Columbia government has increased that tax too!
There are “vacant home taxes” in place to help deter investors from simply buying properties and sitting on them.
So why is a tax on the profits of the sale of real estate suddenly an essential idea?
Oh, I know, because the government needs more money!
This has nothing to do with “reducing the cost of housing for Canadians,” and everything to do with the government needing more tax revenue.
Canadians are already taxed to death. The marginal tax rates are well over 50%, we have a 13% sales tax, and there are taxes on everything from buying a battery to dying.
The one saving grace for all Canadians, from day one, has been the capital gains tax exemption on the sale of a primary residence, which almost makes the rest of the taxation easier to swallow. Almost…
I’m insulted, not only as a person of (I hope!) average intelligence or better, but also as a person with the Canadian Maple Leaf tattooed on my back, that the government is not only trying to steal from us once again, but they’re doing so under false pretences.
Don’t kid yourself – they’re calling this a “speculation” tax, but it’s not.
Why?
Because the tax isn’t just for people who sell in less than one year.
It’s for people who sell in less than FIVE years!
The tax calls for:
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
Go ahead, explain to me how this is a “speculation tax.”
Try. I dare you.
The average duration of home ownership in central Toronto, if I had to guess, is probably 3-4 years. People move. It’s the cycle of life.
You rent your first condo or apartment for a year, then you buy your first condo. Then you “move-up” to a larger condo, a townhouse, or a freehold, and in 3-4 years, or 5-7 years, depending on what you had previously owned, you make a bigger jump – hopefully one that will suit you for a while.
The idea of taxing somebody for “speculating” because they bought a condo in downtown Toronto in 2016 when they started working at PWC, and then sold it in 2019 because they got a job with KMPG in Hamilton and moved, is abhorrent. It’s despicable. It’s revolting. It’s insulting. And it’s unfair.
Too harsh? I don’t think so.
My critics will ask, as they have done before, “Well, David, where else should the government look for sorely needed tax revenues in order to pay for necessary expenditures?”
And to that, I would reply that “necessary expenditures” is an entirely different conversation.
I would also add that taxes, if we’re starting in a new fictional society, in year zero, will never come down. They have nowhere to go but up, as fiscally-irresponsible and financially-unsavvy people in control of the spinning globe, continue to spend more and more money, and become less and less efficient.
I want to puke.
Imagine a 25% tax on the profits of the sale of your home after two years?
But we can deduct land transfer tax, right? The $31,000 you paid to move into that $950,000 house? That “nothing tax,” as I call it, which doesn’t pay for your garbage, hydro, and snow-plowing, because your property taxes do? You mean that tax?
There’s no mention of this from Adam Vaughan and his band of world-saving do-gooders, but I’ll bet my Blackberry 8700 that this wouldn’t be included in the calculation of a “profit.”
I suppose the salt in the wound here is the idea that this isn’t an undoing of the capital gains exemption, but this complete B.S. about a “speculation tax.”
This reminds me of a courtroom scene in a movie, the title of which currently escapes me.
The CEO of a gun-manufacturer is testifying under oath, and the lawyer, who is trying to show that guns kill, among other things, asks the CEO why the gun company advertises “Fingerprint-proof” in some of their marketing.
The CEO answers, “Because fingers contain natural body oils, and oil will rust metal.”
The lawyer then responds, “Then why not advertise ‘rustproof’ instead of ‘fingerprint-proof?'”
Call this what it is. Be man enough (if I can still use that phrase in 2019) to say, “The Liberal government needs more of your money, so we’re going to take part of the sale proceeds of your home.”
It’s just so backwards, so calculated, and so sneaky.
It’s like this “sweetened beverage levy,” which is being recommended, apparently, to help save lives.
Yes, sugar is bad for us. We know this. As are tens of thousands of other things out there.
But do you really want to be fed this B.S. That the purpose of the tax, er, levy, is to save lives? To reduce the strain on the healthcare system?
This 20% tax on any sugar-sweetened beverage would result in $1.2 Billion per year in levies, er, revenue.
That’s $29.6 Billion over twenty-five years.
And this is apparently going to save us $7.3 Billion over that same twenty-five year period in associated health-care costs.
I would love, absolutely love to see the math behind this.
I picture a dart board, a shot of tequila, maybe a blindfold, and definitely music by Human League.
Tell me I’m a jerk for not caring about people who are addicted to soda, or that I can’t see the forest through the trees in a concept called “harm reduction.” And I will tell you that you are a blind, willing idiot. A sheep, aimlessly following along, while the hunky PM continues to make your mere existence tougher and more expensive by the day.
I’m not telling you who to vote for. There are six major parties running in the next election.
But I am telling you to open your eyes, if you haven’t already.
A soda-tax is not going to solve the problems that exist in public healthcare in Canada.
And why in the world would anybody vote for a government that wants to undo the capital gains exemption on the sale of a primary residence? Unless, of course, your sheep’s wool is over your eyes, and you simply hear “speculation tax,” picture the Monopoly Man with a suitcase full of money, or a 1960’s caricature of an Asian person as they sign an agreement of purchase and sale at their lawyer’s office, and figure, “this won’t affect me!’
Today’s blog post is much shorter than usual, but I think I’ve made my point.
Short and sweet.
But hopefully that doesn’t result in a 20% sweetened-blog tax…
R
at 8:02 am
Really? Nobody chooses microfibre sofas on purpose. It’s what you get on a hand me down from The Brick.
Sirgruper
at 8:56 am
The current non resident speculation tax is a misnomer. You can be from New York buying a family cottage on Lake Simcoe for 40 years and the tax is applicable. Wonder how Canadians would like a 15% land transfer tax went the grandparents retire to a Florida condo. Damn speculators.
As for the sale of real estate, I’m shocked they are suggesting such an egalitarian tax. I am waiting for a lifetime limit on the capital gains exemption. A million dollars and your done. Most people wouldn’t care, tax the “rich”, and with inflation one day everyone will reach the exemption when a starter home is $5,000,000. Don’t believe me? Land Transfer Tax added a luxury level in the 70’s for mansions over $400,000.00. Now that gets you a shoe box. Gotta love government.
Adil
at 8:58 am
Amen brotha!
Izzy Bedibida
at 9:24 am
Very scary. Hopefully there will be some provision for people like my widowed mom if and when this goes through. Her house has gone up at least 25x since it was bough in the mid ’60s. The tax bill on that will be several $100,000.
Chris
at 10:13 am
If she purchased in the mid 1960’s, she will have owned her house for far longer than the six years required to reduce the proposed tax to nil.
Chris
at 9:48 am
“In case you missed it, Toronto Liberal MP, Adam Vaughan, spearheaded a new initiative that would see the profits on homes taxed at a rate of fifty percent if you were to sell this home after one year of ownership or less.”
Capital gains would be taxed at a rate of 50%? Or the inclusion rate would be 50%, taxed at your individual marginal rate? These are two very different things.
“The marginal tax rates are well over 50%, we have a 13% sales tax, and there are taxes on everything from buying a battery to dying.”
The combined federal and provincial marginal tax rate in Ontario for income over $210,371 is 51.97%; for income over $220,000 it is 53.53%. Income below these levels is taxed at a marginal rate of less than 50%. Buying a battery would incur the 13% sales tax previously mentioned, so you’re repeating yourself with this example. As for dying, there is no inheritance tax in Canada, so I’m not quite sure what you’re referring to?
“But we can deduct land transfer tax, right? The $31,000 you paid to move into that $950,000 house?”
According to CRA’s rules, yes, you would consider the LTT and MLTT in calculating your gain.
“To calculate any capital gain or loss, you need to know the following 3 amounts:
• the proceeds of disposition
• the adjusted cost base (ACB)
• the outlays and expenses incurred to sell your property
To calculate your capital gain or loss, subtract the total of your property’s ACB, and any outlays and expenses incurred to sell your property, from the proceeds of disposition.”
“The adjusted cost base (ACB) is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.”
This is all available on CRA’s website.
“Imagine a 25% tax on the profits of the sale of your home after two years?”
As Kyle said a couple weeks ago, “I don’t think anyone realistically can ever expect to break even or make money if they’re selling after two years. I have to imagine they are only selling due to life changes.” So, the tax would be moot; no profit means no tax.
“The average duration of home ownership in central Toronto, if I had to guess, is probably 3-4 years. People move. It’s the cycle of life.”
A 2015 study by Mortgage Professional Canada found that Canadians own between 4.5-5.5 homes over their lives, equating to a move every seven years (assuming they buy their first home at 25, and their last at 65). Selling/buying/moving every three years seems way too frequent in my opinion and would almost certainly result in significant losses to transaction fees over the course of a lifetime.
“The one saving grace for all Canadians, from day one, has been the capital gains tax exemption on the sale of a primary residence”
RRSPs? TFSAs? RESPs? Lifetime Capital Gains Exemption?
“We already have a foreign buyer’s tax. And the British Columbia government has increased that tax too! There are “vacant home taxes” in place to help deter investors from simply buying properties and sitting on them.”
BC has gone much further in taxing real estate than Ontario. But, as Appraiser said recently when Housing Bear brought up Vancouver, “This is the T.O. Realty Blog.”
Personally, I don’t have a huge issue with this tax. Home flippers are already taxed if CRA deem the proceeds from the sale of a renovated property to be business income. These new taxes would seemingly clamp down on people trying to designate a flip as their principal residence in order to avoid taxation.
I also do see this more as targeting speculation. We’ve discussed renting vs. buying ad nauseum here, but I think we all agreed that buying a home is best done with the intention of staying there for a significant period. Even on their radio ads, TREB touts real estate as a “sound long-term investment”.
If you live in your home for six years, this tax has no impact. If you must sell and move before then, and make no profit after accounting for taxes, commissions, etc., this tax has no impact. This tax would primarily impact those people buying and selling in short order to turn a profit.
In my view, your home should be a place that you live, not a get-rich-quick scheme.
Derek
at 10:08 am
It’s the mission creep. First, it expires after 5 years, but then someone will complain about some aspect of that and it will be extended to 10 years and the percentages will always increase. Anyone wonder why the seemingly innocuous requirement to disclose disposition of real property on your tax return came into effect last year. Now you know.
Chris
at 10:21 am
Perhaps. The tax as proposed does not seem outrageous to me. A ten year expiry would seem unreasonable, but I will object if and when that is put on the table.
I agree with your last point though, it did seem that by collecting more data on principal residences, CRA was laying the groundwork for eventually taxing them.
Derek
at 11:19 am
It will be to late to complain in the future. Remember Harper promising to gut the GST? Remember ROFO promising to eliminate the LTT? Taxes don’t go away, they increase and expand.
It’s too broad to be defended as targeting “speculators”. As you say, speculators are already subject to tax, and the new reporting requirements would now catch those trying to avoid paying the income tax on the speculating ventures. I wouldn’t support a new area of tax just because it might be “moot” for some. I suspect that the proposal comes from a desire to implement the new capital gains tax on the population on philosophical or taxation theory beliefs and that the reasons stated for same are simply cover. I hypothesize that if implemented, the outcomes wouldn’t correlate well with the said reasons stated for implementing it. My guess is that it is a desired tax policy that was waiting for an excuse to be foisted upon us. It’s the disaster capitalism of tax policy.
Chris
at 11:50 am
I will complain at the point where I see the proposed tax becoming too onerous. At this point, I don’t think it is. You may feel differently, which is certainly your right.
Many flippers and speculators are probably caught by the current rules, but I imagine CRA’s concern is that some are designating their purchase as their principal residence, renovating the home, and then re-selling it tax-free. While these proceeds should probably be taxed as business income, either at their individual marginal rate or the corporate rate, better to tax it as a capital gain than not at all.
It may catch some non-flippers in its net, but as I outlined above, if they are forced to sell soon after buying, and do not profit, after accounting for taxes, transaction fees, etc. (as many of us doubt they would in a short time frame), then the tax would be zero.
Daniel b
at 5:49 pm
https://www.oecd.org/tax/revenue-statistics-canada.pdf
jeff316
at 11:20 am
Yeah, I agree, this isn’t perfect but it is relatively nimble.
jeff316
at 11:21 am
I think one can quibble with the tax rates but the ladder approach isn’t awful.
Izzy Bedibida
at 10:11 am
Excellent points-especially about a house as being a place to live.
As an aside, the ACB on mom’s house would be $27,000 in 1960’s dollars, on a house currently worth the high $500,000 in 2019 dollars. I wonder how CRA will deal with that. Most of her friends are in the same position. They won the real estate lottery, and now they are about to be punished because they happened to have bought a house at the right time in lived most of their lives in it.
Chris
at 10:15 am
If she purchased in the mid 1960’s, she will have owned her house for far longer than the six years required to reduce the proposed tax to nil.
Frances
at 10:10 pm
And there are expenses from owning a house which would be deductible from the profit. The problem there is proving the expenses since most of us won’t have kept the invoices because we didn’t know we would need them.
Kyle
at 10:19 am
As Kyle said a couple weeks ago, “I don’t think anyone realistically can ever expect to break even or make money if they’re selling after two years. I have to imagine they are only selling due to life changes.” So, the tax would be moot; no profit means no tax.
I was talking about breaking even after transaction costs. If this proposal is based on gross gains, then this is absolutely not a moot tax. Particularly if someone having absolutely nothing to do with speculation is forced to sell due to life changes (e.g. death, divorce, relocation). They would then be taxed at 50% on their gross gain on top of their transaction costs (which too are taxed in the form of HST), which will likely mean they would lose equity. Aside from precon, I actually don’t see any of this speculation in Toronto that everyone talks about. I suspect the number of people who have sold due to life changes (i.e. the unintended targets) actually outweigh the speculators (i.e. the supposed intended targets).
By the way 50% tax would be far more punitive than capital gains tax on any other asset, where 50% of the gain is taxable at one’s marginal tax rate.
Chris
at 10:28 am
“If this proposal is based on gross gains, then this is absolutely not a moot tax.”
It would be very odd to base the tax on gross gains without consideration of commissions, other taxes paid, etc., particularly given that capital gains on almost all other property is calculated as the proceeds of disposition less the adjusted cost base and the expenses incurred to sell.
“By the way 50% tax would be far more punitive than capital gains tax on any other asset, where 50% of the gain is taxable at one’s marginal tax rate.”
Yes. That is why the first part of my comment asked “Capital gains would be taxed at a rate of 50%? Or the inclusion rate would be 50%, taxed at your individual marginal rate? These are two very different things.”
Kyle
at 10:46 am
It would be impossible to implement without rewriting a whole bunch of the existing tax laws. There are a lot of other things that can go into ACB (especially for a property), and some of those should be offset against income, such as capital cost allowances. Then there are improvements, some would qualify as capital improvements, some would not. No homeowner is going to know how to figure it all out.
Chris
at 11:38 am
“There are a lot of other things that can go into ACB (especially for a property), and some of those should be offset against income, such as capital cost allowances.”
Sorry, I don’t quite follow what you’re saying here? CCA is not a factor in ACB; ACB is the starting point of CCA.
CRA could treat a principal residence the same way they treat other personal use property, or perhaps more appropriate, include it in LPP; this way capital losses can be used to offset future principal residence capital gains?
If we start allowing CCA on principal residences, do we also then tax people for recapture if the proceeds of disposition are above the home’s UCC?
I wouldn’t be opposed to including additions and improvements in the ACB of a home, similar to how most other property is treated.
I do agree though, it would be more complex, and would likely require homeowners to turn to an accountant or other expert for assistance. Or to hold their home for at least six years.
Condodweller
at 1:49 pm
@Chris
This is a big can of worms. The big question will be how the property is designated. I definitely would be against treating it as an LPP. I had to look that one up. It would be totally unfair. Correct me if I’m wrong but on LPP you have to pay tax on gains but you can’t claim a deduction in a loss.
I think most homeowners who would unintentionally trigger this tax due to having to sell early due to whatever reason would be hit with a double whammy if they have to take a loss, they can’t deduct it.
Chris
at 1:52 pm
LPP is eligible for both capital gains and capital losses. The difference is that the capital losses can only be used to offset other LPP capital gains.
So, for example, if I sold a house, and had a $50,000 LPP capital loss, and also sold some shares with a $50,000 capital gain, I cannot use the loss on the home to offset the gain on the shares. I can, however, carry forward my LPP capital loss to use if I have a capital gain on a home in the future.
Condodweller
at 2:02 pm
Thanks for clarifying. Earlier I only looked up the acronym not the actual rule. I mixed it up with just regular personal property. This is one of those weird areas where other losses can be used to offset LPP gains but not the other way around. This was a good refresher!
Chris
at 2:12 pm
No problem; this link provides some good, concise information, if you’re interested:
https://www.taxtips.ca/glossary/listed-personal-property.htm
Condodweller
at 2:22 pm
Funny, that’s the link Google returned earlier and what I based my last comment on.
Chris
at 2:31 pm
Key points are:
“If you sell the property at a loss, the loss can only be used to reduce the gain from the sale of other LPP. It cannot be used to reduce other capital gains or other income. The loss can be carried back 3 years or carried forward 7 years to be used to reduce the gain from the sale of other LPP in those years. For personal-use property other than LPP, losses cannot be claimed.”
I think it would be appropriate to treat a principal residence as LPP, but I’m open to dissenting opinions.
Condodweller
at 2:43 pm
It’s not a dissenting opinion, it’s just a different opinion. It’s a good discussion though. If an average homeowner who gets caught up in this and takes a loss, what are the chances that the only LPP gain in the future he/she will have is on their next home. But what if he/she doesn’t sell the next one within the six years? By definition he/she cannot claim it because of the 7 year carry forward rule. This can get complex really fast.
LPP is a special class of personal property i.e. normally depreciating assets such as furniture, tools, etc., normally small value items mind you technically even cars/boats are personal items. I would definitely not place a home in that category.
Condodweller
at 2:46 pm
Correction, my logic got mixed up, my definition is of regular personal items. LPP is a special category of personal property.
Chris
at 3:18 pm
Honestly, I don’t know the best way to approach this logistically. Treating it as LPP, personal property, regular property, etc., all come with pros and cons. I’ll leave it those who are experts in taxation to weigh them.
Condodweller
at 3:24 pm
It’s definitely not up to us. All we can do is debate 🙂 Which I obviously enjoy, but I gotta stop for today 🙂
Jennifer
at 1:08 pm
There is no inheritance tax but there is tax on death as a result of deemed dispositions immediately before death. Maybe that?
Imposing this tax on your primary residence is ridiculous. People legitimately buy a house and move within 5 years all the time. They are not speculating. There already is tax on a secondary home and if they need to increase that to deter speculation, there is an argument to that. But also, if you impose it, you have to allow deductions including mortgage payments and as you note, unless the market has increased significantly, I doubt the net gains would be significant and if within a year or two would most likely be minimal or negative.
The real issue I think is auditing the people claiming the primary residence exemption (and not just focusing on the new housing rebate). If they did that right and got the word out there, that should help to deter speculation and flippers abusing the provision. You don’t need a new wide-reaching tax to do this.
Condodweller
at 1:23 pm
Looks like I was writing my comment at the same time as I did not see yours first. BTW probate fees are not only on deemed dispositions at death.
Chris
at 1:58 pm
I suspected that was what David was referring to, but that’s not really a tax on death, in my opinion. More-so a tax on disposition (deemed or actual) of assets, similar to what one would occur had they been alive and sold off their investments, etc.
“unless the market has increased significantly, I doubt the net gains would be significant and if within a year or two would most likely be minimal or negative. ”
In that case, the tax would be nil, or very little.
I do also think there should be more enforcement and auditing of people claiming the principal residence exemption on relatively quick buys/resales.
Condodweller
at 2:32 pm
“I suspected that was what David was referring to, but that’s not really a tax on death, in my opinion. More-so a tax on disposition (deemed or actual) of assets, similar to what one would occur had they been alive and sold off their investments, etc.”
What you are talking about here is capital gains tax. As Mr. Wilkinson points out below probate fees are based on all your assets not only capital gains. If you have $100 sitting in your savings account you are going to pay the fee.
Chris
at 3:26 pm
Yes, exactly. I assumed David was referring to these taxes, but I wouldn’t really qualify them as a tax on dying.
Probate fees are a bit of a different beast. In my opinion, they’re more of a fee-for-service of the court processes. Although we do pay significantly more here in Ontario, than say Quebec.
Condodweller
at 1:18 pm
“The combined federal and provincial marginal tax rate in Ontario for income over $210,371 is 51.97%; for income over $220,000 it is 53.53%. Income below these levels is taxed at a marginal rate of less than 50%.” snip “As for dying, there is no inheritance tax in Canada, so I’m not quite sure what you’re referring to?”
David always seems to base things on his personal perspective. He most likely does fall into the 53.53% marginal rate. While there is no official tax on dying, our probate fees by any other name is a tax on death i.e. inheritance tax.
I agree with the rest with the caveat of my comment below regarding adding complexity to our already complex tax system and subjecting the average homeowner to it.
Doug Wilkinson
at 1:37 pm
There is no direct tax when you die but when you file for probate on the will there is a fee , a percent on the total value of everything , yes everything that the deceased owned .
FreeMoney
at 2:50 pm
@ Condodweller
Firstly, if “you have $100 sitting in your savings account,” you will NOT pay any probate fees, at least not in Ontario, where the Estate Administration Tax (yes, they call it a tax – refreshing, no?) does not apply to estates under $1,000. Secondly, don’t just throw out the term “probate fees” without specifying how much we’re talking about. The EA tax is 0.5% on the first $50,000 of estate value and 1.5% on the estate value above $50,000 so we’re not talking chump change, but neither are we talking confiscatory.
Condodweller
at 3:15 pm
I stand corrected, I didn’t recall the $1000 exemption. In my defense, I was just using that as an example to say that not only capital gains at death are covered. If your estate is worth $100 clearly you are not concerned with the fee/tax.
This all started out as a debate about whether or not there is a tax on dying. Apologies for not quoting the brackets. Confiscatory is your assertion, not mine however since you brought it up I think the argument can be made that it is. While 1.5% doesn’t sound like much, correct me if I’m wrong, there is no upper limit. If you are talking about a large estate it’s $15,000/million on after-tax $$.
You seem to be an expert in this, has it always been called Estate Admin. Tax? I recall reading about this that it was challenged at one point that in fact, it was a tax and not a fee.
Wow, this is turning out to be quite a clinic.
FreeMoney
at 4:08 pm
The only reason I happen to know the official name (and rate) is that my mother passed away a year or so ago, and my wife and I handled her estate (which, incidentally, was a less-than-modest $250,000 or so, primarily the result of selling her house in suburban Montreal about a decade ago in preparation for a move to Toronto). Prior to that, I was as clueless as I imagine 99% of Canadians are about probate fees/taxes.
And frankly, I wish there were more blogs where such a “clinic” can germinate out of (seemingly) nowhere!
Jason H
at 1:32 pm
Chris,
In general I agree with your viewpoint, however circumstances can also happen where a person is punished for moves out of their control. I have bought/sold 2 homes in the last 4 years (in 2 different cities) due to work. Not sure I’m going to buy again in the near future.
I think taxing up to a year of 50% is definitely reasonable to get rid of some speculators driving up the cost of housing.
However, my ultimate dream would be to get rid of the CHMC altogether, now that would put a damper on prices and fast.
Chris
at 2:01 pm
When you sold within 4 years, did you realize much of a profit, after accounting for all expenses such as taxes, commissions, other costs to incurred to dispose of, etc.?
If you did, then I’m not sure I would say this tax is punishing, as you would still wind up with profit; just less than you would have had there been no tax.
If you did not, then the tax would not have applied, as it will presumably be calculated on capital gains in a similar manner to other property.
Condodweller
at 2:12 pm
“If you did, then I’m not sure I would say this tax is punishing, as you would still wind up with profit; just less than you would have had there been no tax.”
I would have an issue with this based on principle. They would have to somehow exempt people from this tax who are clearly not trying to speculate. I think it is unequal/unfair treatment if one person has to pay tax on their principal residence versus another due to no fault of their own simply because they were “forced” to sell early. Six years is a long time and granted the inclusion rate is lower, but you still have to pay the tax. As we have seen over the past 20+ years you can have a significant gain in 5 years.
Chris
at 2:26 pm
Your position is fair, but I’m not sure I agree.
If you are truly buying a home as a place to live, and not as an investment, you likely are not banking on appreciation significantly outpacing inflation. Rather, you’re buying as a sound long-term investment, and as a place to shelter your family.
If, however, your home does appreciate rapidly, that’s very fortunate and nice for you, but I see no compelling reason why this income should exempted from this tax, even if you are forced to sell before the six year mark. You will still wind up with profit in your pocket, but less than you would have had without a tax.
A better example of a punishing tax would be LTT paid when you buy a home after being forced to sell your current residence; even if you made no profit from the original home, you’re still subjected to this tax, and could wind up worse off overall.
With this proposed tax, you’re still profiting, just not as much.
Condodweller
at 2:54 pm
“If, however, your home does appreciate rapidly, that’s very fortunate and nice for you, but I see no compelling reason why this income should exempted from this tax, even if you are forced to sell before the six year mark. You will still wind up with profit in your pocket, but less than you would have had without a tax.”
So you are advocating for the elimination of the PRE all together? Sorry, I didn’t get that from your earlier posts. I am simply in favour of equal treatment. If you eliminate PRE then this whole conversation is a non-starter. However, I believe the intent of this phased out tax is to keep PRE in place.
Chris
at 3:28 pm
No, I’m ok with the exemption. But I am also ok with the laddered approach being proposed, whereby long-term investors are exempt, and those shorter-term investors are subjected to increasing taxation as their holding period shortens.
daniel b
at 4:52 pm
Have you considered that if you’re selling in an up market, because you want to move across town, that you’ll also be buying in an upmarket? Could end up where when you sell your house you now can’t afford to buy a house in the same city because of the tax.
Less of a concern for this proposed tax because it’s laddered. But this overall concept is the best argument for the personal residence exemption overall.
Kyle
at 9:55 am
If this goes through it will drastically reduce turnover, which directly translates to supply, in the most affordable home types, such as condos and townhouses. Making them even less affordable. Same will happen for all other segments of the market, but to a far lesser degree, as people tend to buy SFH for more than 5 years anyway.
Jules
at 1:08 pm
Thank you!
David missed this point and it’s a big one!
So many government policies have unintended consequences and this would be the worst of them. This is like the rental legislation from 2017 all over again.
This is a great example of why and how this isn’t really about affordable housing and is actually about taxation. Unless the government doesn’t realize that fewer people will sell their homes if their profits are taxed, thus reducing supply, and inflating price. But it’s highly possible they don’t see this. (??)
Jennifer
at 1:15 pm
Great point. Especially for “starter” homes where a family moves on out after a few years. with a growing family.
daniel b
at 11:14 am
David, do you know how large the federal budget is? Do you know what percent of gdp it is? Do you know how those numbers have changed over time? Do you know what public expenditures per capita are in Ontario? How that compares with the rest of the country?
Perhaps you do know these things, but i doubt it. Reading a lot of Sun News opinion pieces does not make you informed. It’s the equivalent of reading the homes section in the Globe and thinking you know about real estate. If you want to have opinions about government i think you need to know actual facts about government…
Read more facts, less opinion, you might find it helpful.
G.I.Joe/He-Man/Parkhurst
at 11:42 am
What is your argument? You asked five questions but said nothing about why these questions were asked (are you trying to relate them to specific point made in David’s blog?). Then you criticized the source of the now verified Liberal MP’s proposal (now reported by other media sources) because, I’m assuming, you don’t like the Toronto Sun? That’s not an argument. Would you have had a different opinion about the blog if the source of the information of the Liberal MP’s tax proposal had come from the Toronto Star? How about Post Media? The Toronto Sun is a subsidiary of Post Media, so are they unacceptable? Why not just tell us how you would feel if you bought a house, but were then transferred to another city and so had to sell that house a few months later….and then be subject to a 50% tax, courtesy of Adam Vaughn and the (“how can we tax more”) Liberals. For me, that’s unacceptable, regardless of which media outlet first reported it.
Chris
at 11:54 am
“Why not just tell us how you would feel if you bought a house, but were then transferred to another city and so had to sell that house a few months later….and then be subject to a 50% tax, courtesy of Adam Vaughn and the (“how can we tax more”) Liberals.”
Unless the home appreciated by a substantial amount over the course of those months, it is unlikely that the proceeds of disposition less ACB and expenses incurred to sell would be a positive number. Therefore, the proposed tax would be zero.
Condodweller
at 1:35 pm
“What is your argument?”
I think his implied argument is that David has no idea of government finance other than the opinion that every tax is bad and they waste money.
I’m not agreeing or disagreeing with him or David.
I must admit I’m not well versed on government finance either. Someone posted a link to the city budget a while back and that is one document I’m not inclined to wade into at any significant depth.
I know governments need tax $$ but I also know that a lot of it gets wasted based on all the large items which make the news.
daniel b
at 4:28 pm
My argument is merely that lots of people have opinions about the appropriate size of government, tax rates, etc without being able to answer the most basic questions about the current state of those very things. Further, it is my experience that the intensity of one’s opinions on these matters tends to be inversely proportional to one’s knowledge of the topic.
By way of example, your outrage at the scenario of someone moving after 6 months is 100% at odds with the fact that there’s virtually 0% chance this scenario would result in a tax being paid. The transaction costs would likely exceed 5% of the home’s value, and the odds of said value increasing beyond that in 6 months are virtually nil.
I think this is a particularly germane point because A) David often wrings his hands about uninformed people and B) he specifically claims to be informed in the post. Perhaps he takes the required ten minutes to read about per capita expenditures, to read the budget summaries that come out each year, etc. Frankly i doubt it. Very few people do. And it’s all pretty easy to find.
My only firm opinion on the matter is that to hold views on these topics very strongly you should probably do the bare essential fact gathering to support your arguments. Not rhetorical points, but actual facts.
Condodweller
at 10:57 am
“Further, it is my experience that the intensity of one’s opinions on these matters tends to be inversely proportional to one’s knowledge of the topic.”
Unfortunately, I have also noticed this trend. My only explanation for this is that I have noticed that many knowledgable people employ the “I’m ok with you being wrong” attitude.
daniel b
at 3:22 pm
I think that it’s much easier to have forceful opinions about things you know nothing about. Don’t know anything about real estate – “bidding wars are bad and should be ended”. Don’t know anything about how are government works “taxes are bad, government is inefficient…”
If you actually know about something you typically discover that things aren’t so clear cut and that most of the easy solutions have already been implemented.
Mxyzptlk
at 11:52 am
IMHO this is one of the better blogs to appear on TRB in recent months. But for one reason only: Chris’s meticulously researched analyses. The ranting of David and most other commenters, on the other hand, are simply tiresome derp (look it up). Guess DF felt he had to live up to the “Friday Rant” title. He succeeded, unfortunately.
Chris
at 11:58 am
Thanks; I’m glad you found my comments helpful!
Derek
at 12:12 pm
Chris, are you arguing in favour of capital gains tax on disposition of principle residence for its own sake, as fair or sound tax policy, or are you in favour of it for the possible outcomes for housing issues in the GTA, or are you in favour of it for other reasons.
I’m just wondering if the crux of this discussion is measures to impact housing is it general tax policy.
Chris
at 12:32 pm
I would like to know more about the proposed tax before I would support it. At this point, I don’t have a huge issue with it, premised on my assumptions being correct (tax is based on capital gains calculated same as other property, 50% figure is inclusion rate, not tax rate, etc.).
From my personal perspective, as I said above, I think your home should be a place you live, not a get-rich-quick scheme or quick flip investment opportunity. We tax consumption, we tax business income, we tax personal income, we tax capital gains on most other property (outside of tax sheltered accounts), we tax dividends; why should we not tax the gain on your home, if you are treating it as an investment rather than a place to reside?
Derek
at 12:50 pm
It will be interesting to see how much traction the proposed tax gets in the coming weeks and months. I think it is one thing to debate the tax policy of the principle residence exception and whether or not it is sound policy. It is a separate issue to debate the impact on the housing market of eliminating the exemption.
Chris
at 2:06 pm
Agreed. I haven’t really waded into the possible impacts on the housing market, because frankly, I’m not sure I can accurately predict what they would be.
I agree with Kyle’s assertion that it will likely reduce supply. However, taxes typically reduce both supply and demand, as illustrated in this nice graph from some Microeconomics 101 type course:
https://pressbooks.bccampus.ca/uvicecon103/wp-content/uploads/sites/58/2016/11/Screen-Shot-2016-12-23-at-8.12.39-PM.png
Tough to say how it all winds up playing out on the GTA real estate market, and resale prices.
Sirgruper
at 7:23 pm
What is you lose money on a 2 year hold property? A capital loss? Doubt it (Chris ignore adventures in the nature of trade
????). Heads cra wins, tails you lose.
KJ
at 12:57 pm
Similar to you this is one of my favourite blog posts. There is one major reason: because David actually has the balls to put this in writing with his name to it! Agree or disagree, you’re not willing to give him respect for doing this?? He’s in the service industry and whereas most people In his position simply placate, lie and gladhand everybody they meet in hopes of attracting clients, he doesn’t care. He is a man of character and resolve, consequences be damned. I respect that. It’s rare today. And for the record I agree with his rant. But I would respect him no matter what for having the balls to write this.
Whaaa?
at 3:13 pm
“Agree or disagree, you’re not willing to give him respect for doing this?”
“I would respect him no matter what for having the balls to write this.”
“No matter what”? Surely you’re not saying you would respect anyone for expressing any opinion, simply because it shows they have “balls”? If so, I can only assume you respect the author of, to pick one of many examples throughout history, the author of “Mein Kampf.”
Condodweller
at 12:58 pm
Staying informed is a full-time job. I try to spend my energy on things that affect me and/or things I have some level of control over. I have to laugh when anyone brings up Trump since as Canadian I have zero control over any of it.
Disclaimer: I haven’t read any of this elsewhere, therefore, I am going to take this info at face value.
Let’s get the sugar levy/tax out of the way. I am all for it if it is going to improve our general health. I would treat it like tobacco. Put a heavy tax on it and any food that has high amounts of unhealthy sugar. It’s not a food staple, therefore, one can easily avoid the tax by not buying these drinks/food and our bodies will thank us later.
WRT the principal residence tax, Chris has done a good job at listing the issues and despite my disclaimer above I have to assume David is wrong on this and the percentages are inclusion rates rather than actual tax. If it was a direct tax it would go against our existing tax structure.
My biggest concern with this idea is the potential complexity the average homeowner would face who has no intention of becoming a RE investor, however, he/she might unintentionally become one should they have to sell their home due to unforeseen circumstances within the six years.
Our tax system is unnecessarily complex as it is due to the annual tinkering of various parts over the past ~80 years. Yes, there was a time when there was no income/capital gains tax.
Therefore, if the average homeowner is going to have to worry about potential future tax on the capital gain on their home it would only make sense that it will be within the existing rules on capital gains calculations on real estate. Even then, he/she has to start keeping track of all the information surrounding their costs right from the purchase in order to be able to calculate their tax should they become subject to it.
As it has been pointed out above, this really should have no effect on the average homeowner who typically stays put for a long time except perhaps the second time purchaser who wants to move up due to a significant pay raise.
Chris
at 2:10 pm
The complexity is a concern. Our tax regime is quite complex as it is, and this would not make it any easier for most to navigate.
For the average homeowner, dealing with potential capital gains incurred on a sale before owning for six years would likely require hiring an accountant or other professional assistance. Not ideal, but not the end of the world either. And agreed, it would presumably be a relatively small minority of homeowners who get caught up in this tax.
lui
at 2:36 pm
I still think all buyers must use their real name instead of over sea shell company.This would remove most of the over sea speculators and bring down some of the bloated pricing in Vancouver and Toronto.You cannot deny many of the $2 million home sold in Vancouver and Toronto are not locals.
Batalha
at 2:51 pm
It’s pretty galling to constantly hear the one-percenters (those of you with income over $225,409 in 2015 according to StatsCan) bitch and moan about their “egregious” tax rate. They (pretend to) believe that all tax revenue goes into the pockets of politicians rather than to (a) services they benefit from, such as schools, hospitals, airports, roads, bridges, electrical grids, public transit, parks, water filtration systems, law enforcement, the military, etc., and (b) their fellow Canadians who are less (in many cases much less) fortunate than they are. But of course, they (pretend to) believe that their high incomes are entirely justified by their ability, work ethic, perseverance, indefatigability, life-long sacrifices, stick-to-it-iveness, ad nauseum. Now that’s worth puking over.
Kyle
at 3:19 pm
This will disproportionately impact those buying starter homes, not the 1-percenters. 1-percenters presumably are already in their “forever home” and don’t intend to move within five years. It’s those just started on the housing ladder, who will pay when they try to move up a wrung or two. It’ll be the young couple that buys a condo, then after a year or two gets pregnant and needs more space who ends up paying this tax.
Chris
at 3:34 pm
“It’s those just started on the housing ladder, who will pay when they try to move up a wrung or two. It’ll be the young couple that buys a condo, then after a year or two gets pregnant and needs more space who ends up paying this tax.”
But you yourself said, “I don’t think anyone realistically can ever expect to break even or make money if they’re selling after two years.”
Assuming that capital gains for this tax are calculated in a manner consistent with capital gains on most other property, in your scenarios with your expected appreciation, the proposed tax burden would be nil.
Izzy Bedibida
at 3:51 pm
But the fact that it is there is what is “scaring” many people.
Chris
at 4:03 pm
Hopefully more information will soon be released about this proposed tax, so we can clarify the impact, and dissuade some of the fear.
Kyle
at 4:13 pm
Again you’re assuming the tax is based on net, which we don’t know. But let’s assume it is based on net, and they end up having a cap gain why should they be taxed? Just cause someone gets a gain that they didn’t expect, doesn’t make it ok for the government to come in and take up to half away.
What’s your rationale for making them pay such a tax when they bought the home as a principal residence?
Chris
at 4:27 pm
Yes, I am assuming that, because as I said above “It would be very odd to base the tax on gross gains without consideration of commissions, other taxes paid, etc., particularly given that capital gains on almost all other property is calculated as the proceeds of disposition less the adjusted cost base and the expenses incurred to sell.”
“Just cause someone gets a gain that they didn’t expect, doesn’t make it ok for the government to come in and take up to half away.”
By that logic, if I buy blue-chip stocks in a non-tax sheltered account, and realize an unexpected gain, why is it ok for the government to come in and take up to half of my profit away? Why is it ok for the government to take my employment income away?
(I’m asking the above somewhat rhetorically, because I don’t really want to get into a philosophical debate on the merits of taxation…)
FreeMoney
at 4:39 pm
By the same token, what’s the rationale for taxing labour (see Lucky Riverdaler below) at twice the rate of (arguably “unearned”) capital gains, not to mention designating certain capital gains (e.g. primary residence appreciation) to be tax-free? If we as a society supposedly strive, at least to some degree, to “tax things we don’t like/want” such as tobacco, alcohol, carbon, etc. while “not taxing things we like/want,” the obvious conclusion is that we (both our governments and ourselves, at least the majority of us) favour investment over labour. Of course, no one would dare phrase it so starkly, but the constant fawning over the brilliance of people like, for example, Warren Buffett makes our position painfully obvious.
Jimbo
at 11:46 pm
Without investment labour suffers……
Kyle
at 9:20 am
I never asked for a debate on the “merits of taxation”. The whataboutisms that you’ve thrown around are very clearly taxes on wealth and taxes on income and have always been stated as such and therefore are not at all in question. The proposed tax that we are actually discussing is being billed as a “tax on Speculators”, and the PRE is an exemption of cap gains taxes on principal residences. Yet the most likely to be caught up in this tax are non-speculators selling their principal residences.
Chris
at 9:51 am
You asked why it was ok for government to take away unexpected gains. It shouldn’t surprise you that this leads to comparisons with other taxes, as myself, FreeMoney, and Lucky Riverdaler have done. In light of our taxation policies, to simply state “Just cause someone gets a gain that they didn’t expect, doesn’t make it ok for the government to come in and take up to half away” is insufficient.
“Yet the most likely to be caught up in this tax are non-speculators selling their principal residences.”
I’m sure some people will be inadvertently caught in this tax. Whether they are speculators or not, is a question of their motivations, which may be difficult to assess as an outsider. But either way, as I said to Condodweller above, if someone is forced to sell after only a few years, and they do not break even (as you yourself doubted they would) this tax would not apply (yes, I am assuming that capital gains in this instance will be taxed similar to most other property). If they are forced to sell and they do have a net gain, they will still wind up with profit, yet less than they would have in the absence of this tax; certainly not the worst position to be in.
Lucky Riverdaler
at 4:16 pm
I worked for 43 years, never earning more than $56,000 gross, and my income was taxed (admittedly at a low rate). I have lived in the same house for 21 years, during which time it has appreciated by roughly $800,000 on which I will pay no tax whatsoever. So my earned income (my labour) is taxed whereas my unearned income (capital appreciation) is not. But I suppose a real estate blog is not the place to raise such an “inconvenient truth.”
Condodweller
at 4:09 pm
This is the fundamentals of capitalism. You raise capital to invest and reap the benefits. Most people raise their capital through labor throughout their life though unfortunately many do not invest any of it but spend it. Unearned income comes from the fruits of one’s investments. Their home is where a large percentage of the population “invests” their money.
Are you proposing that 100% of the gains on your home be taxed as well? Do you believe if homes were taxed then tax on labor will be reduced?
Lucky Riverdaler
at 4:12 pm
If I believed that “100% of the gains on your home be taxed” I would have proposed that “100% of the gains on your home be taxed.”
Jimbo
at 12:00 am
As a fiscal conservative I agree with the idea of a capital gains tax at the marginal rate on 50% of the gain.
Why shouldn’t Canadians enjoy the same benefits of a raising housing market with the participants.
Housing is the biggest and best investment you will ever make. Imagine the windfall from all the sales since 2008.
I don’t think this is something that should tank the market and I hope prices do not fall substantially from it.
I don’t think it is a fair deal with a double land transfer tax.
Chris
at 1:49 pm
On the topic of sugar taxes:
“Two working papers published on May 20th seek to help policymakers find the sweet spot. Hunt Allcott of New York University, Benjamin Lockwood of the University of Pennsylvania and Dmitry Taubinsky of the University of California, Berkeley, compute the “optimal” tax rate that maximises social well-being, taking into account differences in consumers’ income and behavioural biases.
By analysing shoppers’ behaviour, the authors find that demand is elastic enough that a tax, and not a subsidy, is socially beneficial. They compute an optimal tax rate of 1-2 cents per ounce of soft drink in America. That is higher than the average rate of 1 cent in those cities with a tax.
But there is a wrinkle. In the real world, if taxes in one place get too high shoppers will arbitrage the rules by travelling to buy soft drinks elsewhere. Taking this into account they reckon that the optimal rate for cities is 0.5 cents, although a more efficient system would be a state or national tax to control America’s sugar rush.“
Soda stream – How to tax sugary drinks, The Economist, May 25, 2019.
Pete
at 8:36 am
I would support taxing home profits within the first year. I have friends who have quit there jobs because they flip houses full time. They are no longer paying any income tax, but they still get access to maintained roads, health care, police and fire services, etc. Is that fair? People who can live off the proceeds of house sales tax free ?
Frances
at 10:39 pm
Pete, if one makes a business of flipping houses, the CRA will treat the profits as income. There will not be a principal residence exemption in that case. And there will be a municipal property tax regardless.
Stephen
at 1:34 pm
I might be wrong, but I think one of the major reasons why people in Toronto often elect the Liberals is because the Conservatives always have the worst people running for office, or the worst platform ideas when it comes to social issues. Their party is filled with people who are either homophobic, or anti-abortion, or anti-immigrant, etc.
If we just had a party that was fiscally conservative, and not such backwards idiots when it came to social issues, perhaps people in Toronto would vote Conservative more often.
Stephen
at 1:48 pm
I also forgot to mention climate change deniers!
Jimbo
at 8:04 pm
LOL what about decent humans in the Conservative party deniers?
Steve Mitchell
at 11:16 am
It’s all part of the War On Winners.
Homeowners, motorists, business owners…we are all disproportionate contributors to economic growth, pay check creation for others, and generally making everyone’s lives better.
We are also the biggest contributors to charities.
But does government care?
No.
The just pillage us for our ‘fair’ share. But the data shows….we are the ONLY share!!
There’s a revolution coming.
Samuel
at 11:22 am
As a 29 year old “professional” trying to maneuver into real estate investing with 2 start up businesses, I gotta say, I’m scared shitless.
I’m forced to consider leaving the Americas entirely to build a life off-grid on an island somewhere. Admittedly I’m unaware of many political moves that’s digging us deeper and deeper into this economic picture..
But as they say, the rabbit hole is simply too deep for many to fathom and maneuver
Gail Tomashewski
at 9:22 pm
Spot on sir. It is all in the use of language and how to entice people who don’t read and I can guarantee many don’t. Therefore the snowball of communism or dictatorship creeps closer take your pick. Mind you on the up side E. May has predicted the end of the world in 4 years. Anyone for bids on her beach house? As for Singh, cap rates on cell phones? If he has his way there will be none because all material required to manufacture them will be outlawed.
Andrew Hudson
at 9:51 pm
It’s more CON Scheermongering.
Blatant lies.
https://ipolitics.ca/2019/09/13/tory-allegation-of-secret-trudeau-tax-plan-a-blatant-misrepresentation-liberal-incumbent-says/
B
at 12:40 pm
will you get to write it off if you sell at a loss?