Including one other tax on your house is just not good politics

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There have been quite a few stories final week in regards to the prime minister and finance minister assembly with a government-funded suppose tank to debate a wide range of points involving “generational fairness,” one among which was the introduction of a house fairness tax.

This explicit suppose tank, Technology Squeeze, appears to suppose that one of many methods to allow the youth to afford a brand new house is to go after older individuals who have labored laborious traditionally to save lots of sufficient to purchase a house and repay their mortgages. Such older folks’s houses have typically benefited from a long time of capital appreciation.

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“Gen Squeeze believes that it’s time to protect real shelters, not tax shelters. It’s unfair to sustain a system in which the hard work Canadians do every day in their jobs is taxed more than the wealth homeowners gain from rising prices while they sleep and watch TV,” it says on its web site.

“The first step is putting a price on housing inequity by adding a modest surtax on homes valued at more than $1 million. This surtax will apply only to the top 12 per cent of high-value homes; the vast majority of Canadians won’t pay a penny more. But it will help slow down home prices so earnings have a chance to catch up, demonstrating allegiance to the Canadian dream that a good home should be in reach for what hard work can earn.”

The suppose tank’s web site is stuffed with the standard left-wing victimhood messaging, but it surely’s fairly clear that older Canadians are the obvious drawback.

Ignoring that, is a house fairness tax a good suggestion? The brief reply is not any. Canadians already pay a protracted record of taxes on their houses, comparable to municipal property taxes, carbon taxes and GST/HST on new builds, renovations and utilities. As well as, if the eventual disposition of their residence or rental property doesn’t qualify for the principal residence exemption, they may also pay capital good points taxes to the extent the property has appreciated.

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How a house fairness tax will clear up the issue of affordability is a thriller. Proposing new taxes is straightforward. Governments can actually cost a tax on just about something in the event that they suppose the coverage aligns with its supposed income targets. What to do as soon as the tax revenues are raised is the powerful half. And that’s the place many left-leaning fiscal insurance policies fail.

Within the current case, if a house fairness tax is imposed, the affected properties will presumably — because the above quote suggests — develop into extra inexpensive for kids to buy. That appears doubtful to me. Market worth goes again to primary supply-and-demand economics. If demand exceeds provide, costs will enhance.

A house fairness tax proposal is in line with the bogeyman strategy to housing points that our present authorities, supported by left-leaning suppose tanks, has taken.

First, it was foreigners that had been the issue. Accordingly, Canada launched a ban on foreigners buying Canadian actual property (this ban was lately prolonged to the tip of 2026). As well as, it was these foreigners who had been “underutilizing” actual property, and so cities comparable to Vancouver, Toronto and others launched a type of empty houses tax, and the federal authorities adopted swimsuit in 2022 with its Underused Housing Tax debacle.

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The second bogeyman was these flippers of actual property, so the federal government launched the ridiculous and duplicative flipping tax in 2023. The third bogeyman had been the evil short-term rental homeowners and operators who function in an space that bans short-term leases, so the federal government launched a ridiculous and harmful rule to disclaim expense deductions to such folks.

And, now, it’s these darn older individuals who labored laborious all through their lives to accumulate and repay their houses and had the nice fortune of capital appreciation.

Housing provide is a multi-faceted and complicated societal subject. Frequently introducing tax guidelines to go after people who find themselves the perceived drawback is solely politics — and poor politics at that — on the expense of excellent coverage. For instance, our nation’s housing points are immediately tied to elevated and uncontrolled immigration, so our immigration insurance policies have to be amended.

That doesn’t imply, nonetheless, that sure current tax guidelines that influence housing, such because the principal residence exemption, shouldn’t be reviewed. I’ve lengthy said, together with in a latest podcast episode of mine, that the principal residence exemption may be very beneficiant given the limitless quantity that may be claimed. Different international locations, comparable to the USA, have limits on their principal residence exemption.

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Maybe within the context of total tax reform/assessment, the principal residence exemption might be reviewed and higher focused. That may be very tough provided that the exemption may be very cherished and enshrined. Any authorities that took a number of the current advantages away would doubtless pay a excessive political value.

Sir Winston Churchill famously said, “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

Historical past is clearly a superb information. For instance, regardless of the continual chatter that earnings inequality might be solved with a wealth tax, the historical past of such an imposition is horrible and ineffective, so solely a handful of nations nonetheless have such a tax.

Within the current case, given how determined our present authorities is for tax revenues to prop up its bloated spending and political fortunes, nobody must be shocked at any new type of tax that’s floated.

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New taxes, nonetheless, usually are not the reply to our nation’s points. As an alternative, good governance, management and financial insurance policies would go a great distance towards uniting our divided nation.

Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Personal Consumer, a former chair of the Canadian Tax Basis, former chair of the Society of Property Practitioners (Canada) and has held many different management positions within the Canadian tax neighborhood. He will be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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