“Political suicide”: capital gains tax on home sales is a risky proposition, experts say – National
Affordable housing is a priority for Canadian voters, with the three major parties each pledging in their platform to make it easier for families to buy a home.
A market cooling option in the policy toolbox: taxing capital gains on the sale of primary residences.
Politically, this is not an easy proposition to sell. The proposal is so unpopular with voters that when a senior banking economist suggested in a research paper earlier this year that the principal residence exemption from capital gains tax be reconsidered, he subsequently clarified that the idea was launched as a “theoretical exercise”.
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The Canadian government first introduced the capital gains tax in 1972, but exempted primary residences from tax in an effort to encourage home ownership. Half a century later, auction wars, blind bids and double-booked views – once the subject of big-city lore – have become ubiquitous in rural and suburban areas of the country.
The Liberal Party campaign platform says the government would create an ‘anti-rollover’ tax that would require most properties to be held for a year to curb speculation, which critics say is essentially a tax on earnings in capital.
Yet amid the worsening housing crisis, some say it’s time to reconsider the concept.
“Policymakers should put everything on the table, including … the principal residence exemption from capital gains tax,” RBC senior economist Robert Hogue said in a research report in March. He subsequently noted that this proposal was not intended to be a political recommendation, saying it was “more of a theoretical exercise than a politically viable exercise”.
“With many Canadians having built their wealth (and their retirement plans) by realizing the full value of their home, any changes should carefully balance the impact on the housing market and the financial security of Canadians, and only apply ‘in the future basis,’ Hogue wrote in the revised memo.
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Politicians seem to agree. None of the plans proposed by the major parties in Canada propose to lift the capital gains exemption for principal residences, with the exception of the anti-rollover tax proposed by the Liberal Party.
That’s because it would be “political suicide,” said Tim Cestnick, tax and personal finance expert and CEO of Our Family Office Inc.
“Many Canadians think of their home as their retirement plan,” he said. “If the government just changed the rules and started taxing the earnings, it could put a lot of people in a very difficult retirement situation. “
Conservative Leader Erin O’Toole said in Thursday’s leaders’ debate that “Canadians are afraid (Liberal Leader Justin Trudeau) of taxing their sales of primary residences.”
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The tax proposed in the liberal platform would in practice apply to very few people since most Canadians buy a home with the intention of living there rather than making short-term money, Paul said. Taylor, President and CEO of Mortgage Professionals Canada. .
The promise means, he said, “If you are in the business of buying a house, renovating it and selling it, the government will credit you for all the investments in the property that you have made … but any appreciation beyond your investment, if you’ve owned the home for less than 12 months, will be 100 percent taxable income.
“I think it is particularly aimed at those who use the yield from real estate as income without declaring tax on it,” he said, noting that there are many “exits. built-in ramps for people facing life changes that may require selling a home soon after purchase.
“It sounds pretty focused in the initial description of this one but the devil just might be in the details.”
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Taylor says it’s not surprising to see critics characterize the liberal proposal as the thin edge of taxing capital gains on primary residences, however, “because that’s technically what they’re doing.” .
He questions the effectiveness of the promise. For example, he wonders how the CRA would determine the difference between someone who sells for legitimate reasons and those who turn around strictly to make money.
As much as it has deterred the fins, Taylor said it wouldn’t necessarily have the impact on house prices the Liberals are hoping for.
“There are people who buy dilapidated houses, invest in them to make them habitable again, and then resell them, which in effect adds to the housing stock, which we all recognize suffers from considerable supply constraints. this moment. “
Indeed, many experts say that the limited supply of housing – the number of new listings on the market each month – is the biggest contributor to the warming of the market.
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“The problem is, we haven’t built enough houses,” said Jean-François Perrault, senior vice-president and chief economist at Scotiabank. “The number of Canadians has increased, but the number of households is not growing fast enough to keep pace.
“In fact, I don’t think (the liberal proposal) would even help the housing market much. The impact would be very minimal, ”he said, also pointing to the supply side as the most important pressure point.
“It also does not change the fundamental imbalance in the housing market.”
Perrault added, “You’re not going to make any meaningful and lasting changes in affordability unless we just have a better balance between the number of homes for sale and the number of Canadians who need them. “
Rather, the solution is to remove barriers to building new construction for all forms of housing – affordable housing, rentals and single-family homes, he said.
“One thing is for sure: there is no quick fix,” RBC’s Hogue said in his March report. “All options on the demand side have side effects and work, at best, for a limited time. “
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