A Tax on Homeownership?
For some time, rumours have been emanating out of Ottawa. Notably, the Liberal Government is considering unveiling a tax on homeownership. Essentially, the tax intends to make the proceeds from the sale of your home, no longer capital gains exempt. And Andrew Scheer, leader of the Conservative Party, fuels these rumours in a letter put out on August 26th. Scheer claims that Adam Vaughn, Justin Trudeau’s Advisor on Housing and Urban affairs “wants to introduce a capital tax on the sale of primary residences”. Currently, profit from the sale of a principal residence is not taxable in Canada. And, I’m certain most homeowners would like to keep it that way.
How Will Homeownership and Affordability Change?
Given the Federal Liberal Government’s track record on taxation and its insatiable need to take on debt, it is not a stretch to imagine there is merit to Andrew Scheer’s claim. According to the Federal Conservative Party, the plan would see a 50% tax on the sale of a principal residence one year after residency, and continues to:
- 25% after two years
- 15% after three years
- 10% after four years; and
- 5% after five years.
The communication goes on to note that, “this new tax will affect people who move for a new job, buy a home because they need a place to live right away, but are hoping to find a larger permanent residence, people who have a sudden change in family status because of marriage, divorce, or children. There are many reasons for someone to buy a home in less than five years and they shouldn’t be punished for it.”
Then again, in a recent release, Justin Trudeau’s housing platform did not mention any intent to invoke the tax proposal. And, Adam Vaughn denies the Conservatives Party’s claim and calls it misrepresentation. Given that taxes are not generally popular around election time, the information was leaked in a tweet by the Conservative Party. It alleged, “Trudeau’s hidden Agenda: Tax Hikes to Pay for His Massive Deficits”. It should be noted that Adam Vaughn is a former Toronto city councillor who had a very leftwing outlook. That’s why his involvement in such a proposal is no surprise. Rumour is, it’s been on Trudeau’s desk for some time now.
The Impact to Affordability on Toronto’s Real Estate Market
Certainly, the implications of such tax in Canada would be disastrous on affordability. This is especially true for Toronto’s real estate market, which already faces supply issues. Although, it would open a new revenue stream for the Federal Government. In particular, penalizing homeowners to sell their principal residences would cause homeowners to stay in their homes longer. This would further constrict already limited supply of inventory coming to market, especially in the low rise segment. In fact, many levels of government have tried and failed to tax the Toronto real estate market.
Are issues like homeownership or affordability in Toronto’s real estate market important to you? Do your research on which candidate/party you are going to consider casting your ballot for on October 21, 2019.
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This article is written by Ralph Fox, Broker of Record and Managing Partner here at Fox Marin Associates. Ralph is a Torontonian native who recognized from an early age that the most successful people in life apply long-term thinking to their investments, relationships, and life goals. It’s this philosophy, along with his lifelong entrepreneurial drive and exceptional business instincts that help to establish Ralph as a top agent in the real estate market in downtown Toronto.
