I agree housing has become an overly protected and tax-advantaged savings vehicle in Canada, but I’m not convinced adding more taxes to housing is the best fix.
To me, the deeper issue is that productive investment has become less attractive than passive housing appreciation. So naturally, capital flowed into homes instead of businesses, innovation, and productive enterprise. Homes gradually became more than shelter; they became the country’s default retirement plan and inflation hedge.
I suspect the healthier long-term path is not primarily to punish capital for entering housing, but to make productive enterprise, savings, and investment more attractive again. Reducing taxes and friction on productive business investment may ultimately do more to rebalance capital allocation than adding new taxes to primary residences.
At some point, government needs to step back a little and allow freer market forces to direct capital and human effort toward genuinely productive activity again.
Great discussion as always. I look forward to every episode.
Yes, the US system seems to be unhealthy. The present Cdn system is also good for conservation and jobs. People buy an older home, claim it as a principal residence [living in it or not] fix it up, and make a profit that is not taxed. Seems good to me.
It's scandalous that Ontario stopped doing property assessments. Here in BC property values are reassessed every year. Property taxes don't change much since you only pay your relative share vs all others and the mill rate adjusts with prices.
We put all our money into maintaining our house trusting it would be our retirement funds when we couldnt take care of it anylonger. This house has stood solid and strong for over 200 years and will make a wise investment for the next generation.
Houses need maintenance.
Homes in Canada are expensive to maintain.
Young people dont understand that.
People that argue we should pay capital gains on the value of our home are not seeing the whole picture.
We are not to blame for high prices of homes. Cheap mortgages, foreign Investors looking for tax shelters, short sighted politicians that took too long to tax speculators caused much of this problem.
Think about the older generation trying to eak out survival on $1200 per month pensions that will be homeless soon.
Any tax on capital gains would consider the costs spent into maintaining and improving the house throught the years. If you spend 5000$ to repair the roof, these are 5000$ you can add to the cost basis of the house, and will not be accounted as a profit when it is sold.
So really what we're talking about taxing here, is the -pure- profit after all expenses related to the house have been deducted. This is already how taxes are managed on secondary homes and rental buildings. (And that is also why, under such scenario; mortgage expenses would be deductible against those profits too, as explained in the main text.)
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You mention "We are not to blame for high prices of homes", indeed, but it is irrelevant on whether capital gains should be taxed or not. Many people on the right seem to consider taxes as some kind of "punishment" for being rich, but it is not. It's great you're rich, and we are not looking to confiscate your wealth per se. We are looking however, at a system where wealth is better distributed across society and not concentrated in a few hands; especially when these people were not the primary driver of that wealth.
Housing is a great example of that: People bought who bought their houses on the cheap in the 60-80's are now the owner of a million dollar asset. It's not a "bad" thing per se; but they did not "create" that wealth. The house has stayed the same in the last 50 years. To the extent they have a merit, it's by taking care of the building; and maybe improving it. But that shoud not entitle them to anything more than the price they paid to build the house, and the price they paid to maintain and improve it. And capital gains tax rules do account for that.
Any profit above that is the result of public policy and social evolution, for better or for worse. And at least part of these profits should therefore belong to the society that brought about the conditions to cause these houses to increase value just by existing.
Once again it's not about "punishing" any homeowned for being a homeowner or having become rich for it; it's about the fairness of ensuring that a fair share of the profit get to whoever caused that profit to happen.
--------------
That being said, I'm sensitive to the argument of financial stability and planning.
Even if I consider that the tax rules are currently -unfair- and should be changed, many people have made their financial planning based on these rules, and as you mention, for many seniors, the worth of their home is the core of their retirement money.
If we were to decide, now, that these would be subject to capital gains tax, that would then come to eat 15-30% of that amount, would be catastrophic for many of them.
But no serious proposal to implement capital gains tax on primary homes, would do it that way. There are many different propositions, but all would make sure that people's existing fincancial planning is not thrown out the window:
- Some propositions would keep the existing rules in place for people who already own a given home at a given date. New rules would only apply to houses being purchased after that date. The downside of this propoposal is that it increases the "lock-in" incentive and make existing homeowner even more wary of selling their home.
- Other propositions would allow to exempt from the new tax any capital gains accrued -before- the change date. If you bought a house 100k, it is 350k when the new rules comes into effect, and you sell it at 500k, you're only taxed on the the difference between 500k and 350k, not between 500k and the original 100k purchase price. The main downside of this proposal is the difficulty of getting a fair assesment of the marked value of all existing homes on a given date.
- Finally, some proposal simplify and approximate the previous idea by assuming the price increase has been at a constant rate over the whole period the home was being owned by the current owner. For example, you sell your home at 500k, which you had purchased 30 years ago at 100k. That is 5.5% increase per year on average. You sold your house 10 years after the new rule came into effect. That means that it had been 20 years under the previous rule. At the crossover date, assuming that 5.5% had been constant over time, the home was worth 292k$. You'd only be taxed on the profit above that amount, for the last 10 years, so on the last 208k$.
all of what u say fails to recognize the aging process of the human condition. My guess you are at the middle of your time on this planet. please consider those over 70 that cant earn an income, cost of living has eroded their nest egg and the only assett left is their home.
My phone bill is all my Canada pension will cover. Seriously!!!!
From your text to CRA ears. Thats why they want me to pay tax on a farm property i severed to pay a fee on the property i had to sell to pay a 6 yr old oversite by CRA on a propery I live at before i sell it “just in case” Seriously.
Oh, and outsiders see what they see but dont have the right to throw the word “rich” at anyone that gives the appearance of living “well”. Thats just envy.
Billionares are rich. The rest of us are just old people that worked all their lives to craft a life that requires maintenance and have a plan to insure we have enough equity to live as we reach our expiry date.
What happens when costs escalate and you MUST sell your home you live in and expected to live out your life there?
…and then the tax man stands there with his hands out?
Those old pictures of the guy wearing a barrel from the Great Depression start looking like your destiny.
I agree housing has become an overly protected and tax-advantaged savings vehicle in Canada, but I’m not convinced adding more taxes to housing is the best fix.
To me, the deeper issue is that productive investment has become less attractive than passive housing appreciation. So naturally, capital flowed into homes instead of businesses, innovation, and productive enterprise. Homes gradually became more than shelter; they became the country’s default retirement plan and inflation hedge.
I suspect the healthier long-term path is not primarily to punish capital for entering housing, but to make productive enterprise, savings, and investment more attractive again. Reducing taxes and friction on productive business investment may ultimately do more to rebalance capital allocation than adding new taxes to primary residences.
At some point, government needs to step back a little and allow freer market forces to direct capital and human effort toward genuinely productive activity again.
Great discussion as always. I look forward to every episode.
Yes, the US system seems to be unhealthy. The present Cdn system is also good for conservation and jobs. People buy an older home, claim it as a principal residence [living in it or not] fix it up, and make a profit that is not taxed. Seems good to me.
It's scandalous that Ontario stopped doing property assessments. Here in BC property values are reassessed every year. Property taxes don't change much since you only pay your relative share vs all others and the mill rate adjusts with prices.
Excellent discussion
We put all our money into maintaining our house trusting it would be our retirement funds when we couldnt take care of it anylonger. This house has stood solid and strong for over 200 years and will make a wise investment for the next generation.
Houses need maintenance.
Homes in Canada are expensive to maintain.
Young people dont understand that.
People that argue we should pay capital gains on the value of our home are not seeing the whole picture.
We are not to blame for high prices of homes. Cheap mortgages, foreign Investors looking for tax shelters, short sighted politicians that took too long to tax speculators caused much of this problem.
Think about the older generation trying to eak out survival on $1200 per month pensions that will be homeless soon.
Any tax on capital gains would consider the costs spent into maintaining and improving the house throught the years. If you spend 5000$ to repair the roof, these are 5000$ you can add to the cost basis of the house, and will not be accounted as a profit when it is sold.
So really what we're talking about taxing here, is the -pure- profit after all expenses related to the house have been deducted. This is already how taxes are managed on secondary homes and rental buildings. (And that is also why, under such scenario; mortgage expenses would be deductible against those profits too, as explained in the main text.)
-----------
You mention "We are not to blame for high prices of homes", indeed, but it is irrelevant on whether capital gains should be taxed or not. Many people on the right seem to consider taxes as some kind of "punishment" for being rich, but it is not. It's great you're rich, and we are not looking to confiscate your wealth per se. We are looking however, at a system where wealth is better distributed across society and not concentrated in a few hands; especially when these people were not the primary driver of that wealth.
Housing is a great example of that: People bought who bought their houses on the cheap in the 60-80's are now the owner of a million dollar asset. It's not a "bad" thing per se; but they did not "create" that wealth. The house has stayed the same in the last 50 years. To the extent they have a merit, it's by taking care of the building; and maybe improving it. But that shoud not entitle them to anything more than the price they paid to build the house, and the price they paid to maintain and improve it. And capital gains tax rules do account for that.
Any profit above that is the result of public policy and social evolution, for better or for worse. And at least part of these profits should therefore belong to the society that brought about the conditions to cause these houses to increase value just by existing.
Once again it's not about "punishing" any homeowned for being a homeowner or having become rich for it; it's about the fairness of ensuring that a fair share of the profit get to whoever caused that profit to happen.
--------------
That being said, I'm sensitive to the argument of financial stability and planning.
Even if I consider that the tax rules are currently -unfair- and should be changed, many people have made their financial planning based on these rules, and as you mention, for many seniors, the worth of their home is the core of their retirement money.
If we were to decide, now, that these would be subject to capital gains tax, that would then come to eat 15-30% of that amount, would be catastrophic for many of them.
But no serious proposal to implement capital gains tax on primary homes, would do it that way. There are many different propositions, but all would make sure that people's existing fincancial planning is not thrown out the window:
- Some propositions would keep the existing rules in place for people who already own a given home at a given date. New rules would only apply to houses being purchased after that date. The downside of this propoposal is that it increases the "lock-in" incentive and make existing homeowner even more wary of selling their home.
- Other propositions would allow to exempt from the new tax any capital gains accrued -before- the change date. If you bought a house 100k, it is 350k when the new rules comes into effect, and you sell it at 500k, you're only taxed on the the difference between 500k and 350k, not between 500k and the original 100k purchase price. The main downside of this proposal is the difficulty of getting a fair assesment of the marked value of all existing homes on a given date.
- Finally, some proposal simplify and approximate the previous idea by assuming the price increase has been at a constant rate over the whole period the home was being owned by the current owner. For example, you sell your home at 500k, which you had purchased 30 years ago at 100k. That is 5.5% increase per year on average. You sold your house 10 years after the new rule came into effect. That means that it had been 20 years under the previous rule. At the crossover date, assuming that 5.5% had been constant over time, the home was worth 292k$. You'd only be taxed on the profit above that amount, for the last 10 years, so on the last 208k$.
all of what u say fails to recognize the aging process of the human condition. My guess you are at the middle of your time on this planet. please consider those over 70 that cant earn an income, cost of living has eroded their nest egg and the only assett left is their home.
My phone bill is all my Canada pension will cover. Seriously!!!!
From your text to CRA ears. Thats why they want me to pay tax on a farm property i severed to pay a fee on the property i had to sell to pay a 6 yr old oversite by CRA on a propery I live at before i sell it “just in case” Seriously.
Oh, and outsiders see what they see but dont have the right to throw the word “rich” at anyone that gives the appearance of living “well”. Thats just envy.
Billionares are rich. The rest of us are just old people that worked all their lives to craft a life that requires maintenance and have a plan to insure we have enough equity to live as we reach our expiry date.
What happens when costs escalate and you MUST sell your home you live in and expected to live out your life there?
…and then the tax man stands there with his hands out?
Those old pictures of the guy wearing a barrel from the Great Depression start looking like your destiny.