By Franco Terrazzano
and Kris Sims
Canadian Taxpayer Federation
The federal government is using tax dollars to dream up a new way to hammer homeowners.
In 2020, the online news site Blacklock’s Reporter discovered the federal government funnelling $250,000 through the Canada Mortgage and Housing Corporation to figure out how to improve housing affordability.
The big brains funded by the CMHC just released a report recommending that the government target the “housing wealth windfalls gained by many homeowners while they sleep and watch TV.” The annual tax would hit the value of Canadian homes assessed above $1 million. The bill would need to be paid when the home is sold or inherited, and it could cost many families thousands of dollars.
Trying to improve affordability with tax hikes is like trying to boil water with your freezer. Higher taxes won’t make homes affordable.
The report’s authors even acknowledge this simple insight 50 pages into the report.
“Owners of homes valued over $1 million that include informal rental suites may try to recover the surtax by passing some of its cost on to renters,” reads the report.
The reality is obvious: the tax will be tacked on to the rental or listing price, making homes more expensive.
The next page also admits that this home tax could drive up prices for those who can’t afford a $1-million-plus home as more buyers look for less expensive options to avoid paying the tax.
University of British Columbia professor Paul Kershaw is the lead author of the report, and he let the cat out of the bag during an interview.
“Just as government has implemented prices on pollution to curb our carbon emissions to address climate change, so we need to have a price on housing inequity to slow down the skyrocketing housing prices that are eroding housing affordability,” Kershaw said.
Kershaw forgets that raising the price of gasoline is the goal of the carbon tax.
This new home tax won’t just hit big fancy mansions.
According to the Canadian Real Estate Association, the average home price in the Vancouver and Toronto areas is more than $1 million. That means the average family that lives in their home for 10 years would end up with a $10,000 tax bill under a proposal offered by the report.
That’s thousands of dollars that can’t help grandparents fund their golden years and thousands of dollars that a young couple can’t put toward their first family home.
The report estimates that 1.3 million Canadian homeowners would pay the tax.
But the history books teach us that money-hungry politicians will be tempted to reduce the $1-million threshold to hit more homeowners.
When the feds implemented the income tax in 1917, its initially high exemptions meant only very few people paid. Now, most Canadians with paycheques make more than the income tax-free threshold because of the lower personal exemption.
How to create more affordable housing to meet rising demand by Roslyn Kunin
During the 2019 federal election, the New Democrats wanted a wealth tax on household net worth over $20 million. During their 2021 election campaign, they lowered the wealth tax threshold to $10 million. See how quickly that changed?
The newly released report argues the government could use the $5.8 billion from this new tax to “provide benefits to renters.” But the federal government is already $1 trillion in debt. And Prime Minister Justin Trudeau would blow through that cash in less than five days at his current rate of spending.
Governments should remove red tape that limits businesses from building more homes.
“Policies such as zoning rules, restrictions on developing agricultural land, and development charges directly influence both new and existing housing prices,” explains the C.D Howe Institute. “Vancouver’s cost of housing restrictions are by far the largest in Canada, resulting in a 50 per cent extra cost of $640,000 for the average new house.”
Governments should act to reduce sky-high housing prices. The solution is to build more homes, not raise taxes.
Franco Terrazzano is the Federal Director and Kris Sims is the B.C Director of the Canadian Taxpayers Federation.
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