Canada can not just tax itself out of its housing problem


The additional tax would be disproportionately targeted at those living in detached houses in Toronto and Vancouver

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The idea of ​​an annual property tax of more than $ 1 million has been revived by a recent report whose authors believe the tax will lower house prices and the funds generated can be invested to improve housing affordability.

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Canada Mortgage Housing Corp. (CMHC) funded the report of the Vancouver-based Generation Squeeze, a group advocating intergenerational justice and led by Paul Kershaw, a professor at the University of British Columbia.

The report recommends that an annual progressive additional tax be imposed on the value of a dwelling that exceeds the threshold of DKK 1 million. USD. For example, if a property’s appraised value is $ 1.25 million, an annual tax rate of 0.5 percent will be levied on $ 250,000, thereby generating $ 1,250 annually. The additional tax increases to one percent of the amount of over $ 2 million.

The additional tax is expected to raise $ 4.5 to $ 5.8 billion annually, which can be used to fund projects to improve affordability. Despite being an annual tax, the report recommends that the amount be deferred until the property is sold.

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The owner of a home with an average valuation of $ 1.72 million over 10 years would be required to pay an estimated $ 36,000 in additional tax at the time of sale, excluding interest expenses. The deferred amount accumulates to $ 162,000 for a home with an average value of $ 3.1 million over a 10-year period. If the owner dies, the accrued tax accrues to the state of the deceased.

The report claims that the additional tax will only affect nine percent of Canadian households whose home value is estimated to be more than one million dollars.

The report’s additional tax was recommended by a tax policy working group that consisted mainly of academics from Alberta and BC, but that’s basically Kershaw’s idea. He first introduced the idea in one article in Canadian Tax Journal in 2018, and estimated that the tax would generate $ 16 billion annually.

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The proposed additional tax is essentially an additional property tax that is likely to annoy municipalities that are already hungry for revenue because they are only entitled to 10 cents of every dollar paid in taxes in Canada.

The report states that the same surcharge would be applied to all properties regardless of location. It ignores the differences in property taxes paid by residents of different municipalities. The 2018 article noted that a $ 1.25 million home in Vancouver would have paid $ 3,085 in property taxes. A one percent additional tax (as recommended in Kershaw’s 2018 article) would have added $ 2,500 to the property tax bill.

A similarly valued property in a suburb of the Greater Toronto Area (GTA) pays more than $ 10,000 in property taxes, more than three times the Vancouver tax. Still, these properties would be subject to the same additional surcharge, ignoring the sharp difference in property taxes.

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The additional tax will also be disproportionately targeted at those living in detached houses in Toronto and Vancouver. Keep in mind that 75 percent of the 54,757 detached homes sold in the GTA in 2021 exceeded the $ 1 million limit. It is not hard to imagine that the proposed tax network would capture three out of four detached homes in the GTA.

Moreover, the $ 1 million club does not have a significant presence in less populous provinces, although concerns about affordability are no less acute. Moreover, how would one justify using taxes levied primarily from detached homes in Toronto and Vancouver in other jurisdictions?

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Generation Squeeze, despite being well-meaning, pits millennials against seniors or children against parents. Their definition of intergenerational justice implies that we should reduce the income tax on young people and increase the wealth and property tax on seniors.

Kershaw’s 2018 paper does not draw any words on the line between young and old, as he claimed that “the cohort retiring today expects more in taxation from his children than it paid for his parents’ generation when they grew older. “

Creating false and unwise binary elements in society by pitting one cohort against another is not our definition of justice. Nor do we find wisdom in making city life even more expensive by targeting owners of detached houses in Toronto and Vancouver or by depriving municipal authorities of the ability to regulate property taxes.

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Working on the assumption that “$ 1 million is still a sign of significant prosperity by recent historical standards,” one ignores the fact that family-friendly housing in Toronto and Vancouver is beyond this arbitrary threshold. Moreover, it is equally likely that such dwellings will be inhabited by middle-class families.

Any proposal to deflate the values ​​of the most important asset owned by middle-class families will struggle to achieve mass acceptance. No wonder half of the participants who contributed to the report did not agree with “the premise that housing prices must stagnate or fall to restore affordability.”

Murtaza Haider is Professor of Property Management at Ryerson University. Stephen Moranis is a veteran in the real estate industry. They can be accessed on the Haider-Morani Bulletin website, www.hmbulletin.com .

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