If you find yourself in a hole, the first thing to do is stop digging, or so goes the old saying.
But that’s wrong. The very first thing to do is admit you are in a hole, or at least stop bellowing at those attempting to point out that fact. So it goes with Canada’s real estate market, and even the most modest of taxation proposals to slow down the runaway growth of housing prices (and give younger Canadians a slender chance of owning a home).
Exhibit A: an idea floated by University of British Columbia professor Paul Kershaw and dozens of other experts for an annual surtax on properties worth more than $1-million. Those three letters – T A X – were enough to tee up predictable outrage about Ottawa being hell-bent on confiscating the hard-won assets of Canadians and threatening them with impoverishment in their retirement.
It bears repeating that the federal government has shown no interest in a broad move to tax principal residences, although the Liberals have promised a so-called flippers’ tax that would extract a smallish levy from anyone selling a home without an officially sanctioned rationale. Equally spurious is the notion that a housing tax, in any form, represents a mortal danger to retirement plans. For a start, you’d need to believe that those retirement plans were predicated on an unending surge in real-estate prices. That’s not planning; it’s wishing for a pony, and a unicorn to boot.
Prof. Kershaw’s tax proposal, one among a broad range of suggested policies to return the housing market to sanity, proves this point. His plan’s $1-million floor would exempt nine in 10 Canadians straightaway. The flush 10 per cent subject to the tax would face the unimaginably heavy burden of... 0.2 per cent a year for the value of each of their homes in excess of $1-million, rising to 1 per cent for value above $2-million. A homeowner with a $1.2-million property would be assessed an annual levy of $400. Or $8,000 over 20 years, if you like. Even that sum would not be payable until the property was sold.
The problem is not that such a tax would be onerous. The problem is that it’s far too small to have much of an effect on demand. Prof Kershaw, who is also the founder of the youth advocacy organization Generation Squeeze, argues that the prospect of lower returns would dampen speculative demand for housing and make homes more affordable, especially for young buyers. Directionally and theoretically, that’s true enough, though it could take decades. But what’s a few hundred dollars in extra costs compared to annual property value increases of hundreds of thousands of dollars?
Far larger taxes appear to have had no success in taming demand. Someone purchasing a $1.2-million house in Toronto, for instance, would pay a property transfer tax of $32,950. That enormous tax bite has seemingly been shrugged off, as the runaway price spiral continues. Ending that spiral would require federal and provincial governments to coordinate a slew of hugely unpopular measures: an end to easy money from low-interest-rate loans, tighter mortgage rules, significant expansion of housing builds and more densification in core urban areas, to name some of the biggest. And yes, an end to tax policies that have made capital gains from a principal residence sacrosanct – and that, in doing so, have deformed investment flows.
And yet Canadian governments have refused to define runaway home price appreciation as a problem. To be sure, hands are waved, feebly, at the rising cost of housing. But no government has been brave enough to say that real estate prices must fall (or at least stall for decades). Admitting that fact would be the start of an adult debate about tax policy and the real estate market.
Taxing questions
Over the holidays, a family member wondered if, given the arrival of the Omicron variant, purchases of protective masks should be tax-free. There is good news for that relative, and everyone else: Ottawa waived the GST on most kinds of masks more than a year ago. The full announcement can be found here.
For the most part, any mask (cloth, medical or N-95 rated) is exempt. But there are a couple of restrictions. To be exempt from the GST, a mask must have ear loops, ties or straps; bandana lovers are out of luck. And masks with an exhalation valve or vent aren’t exempt either, reflecting studies that have found such masks protect the wearer but don’t do much for others, who are still on the receiving end of the ventilated person’s aerosol plume. Narcissism has a price: in this case, 5 per cent of retail.
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Taxing from home: The Canada Revenue Agency appears to be embracing remote working, with the agency now saying applicants for several types of positions in Quebec do not need to live in a city in which there is a CRA office. The CRA has had ample experience with remote work, with the agency (like so many other employers) forced to atomize its workforce in the early weeks of the pandemic, even as it took on major new initiatives such as launching and administering the Canada Emergency Response Benefit.
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