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We need to end or put limits on the Primary Residence Capital Gains Tax Exemption which is uncapped in Canada, unlike the cap of 200k in USA. It is unfair to re

We need to end or put limits on the Primary Residence Capital Gains Tax Exemption which is uncapped in Canada, unlike the cap of 200k in USA. It is unfair to renters and it is leading to insane housing prices. It is unfair to renters because renters do not have an equivalent 100%, completely unlimited tax-free investment vehicle. We have Tax-Free Savings Accounts, limited to ~$5k contribution per year, and we have RRSP's with max contributions scaled to income, but homeowners have access to all those things too, and they are limited. Homeowners can take advantage of TFSA, RRSP, and then shove all of their remaining savings into maxing out their home purchase and enjoy all of their gains completely tax free. Renters have to start paying capital gains at an inclusion rate of 50% once they max out TFSA/RRSP. This system is completely unfair and places a higher tax burden on renters who are, on average, less wealthy than homeowners. It encourages us to spend more than we should be on housing just to get around taxes, and discourages investing in actual productive things like innovation/companies.

seanc 5y ago
In exchange we get population mobility; without this tax break homeowners would be very reluctant to ever sell their house and move someplace else. Also, housing capital gain isn't completely tax free; we all pay increasing amounts of property tax as the value appreciates. Although those taxes are baked into rents so maybe that's a wash depending on one's point of view. Policy is hard and unintended consequences are around every corner. For example, I could see an argument for changing the scheme to a special rebate. So you pay your capital gain tax when you sell your primary residence but then get it all refunded when you buy another one. But then this scheme would wind up dinging senior citizens with a massive tax hit just when they're trying to put together cash for some end-of-life care.
- joshlemer 5y ago
  But they cap tax free gains in the states at 200k, do we see mobility barriers in that jurisdiction? Also, I believe what you're describing does exist in the states in the form of a "1031 exchange".
- tempestn 5y ago
  You don't pay increasing property tax as the value appreciates. Property taxes on average increase with inflation, not with house prices. Only if your property appreciates more quickly than others do you end up paying more.
jl2718 5y ago
What exact problem are you trying to solve? I can think of a lot that this would cause. Analyze any specific tax policy deeply enough and you’ll find that there is no way to fix something that starts off as unnecessary and harmful.
- joshlemer 5y ago
  The problem is that poorer people or renters generally are subsidizing richer people or homeowners generally. Depending on if your view is that Canadian governments are too big or too small, you'd say that renters are being unfairly overtaxed and should be given a break, or that homeowners are not paying their fair share and should be taxed more.
  - jl2718 5y ago
    A lot of home owner occupant tax advantages were specifically introduced to disadvantage landlords. If you get rid of them, it may make the problem worse because there will be no way out of the rental trap. Separately, there are many tax laws that are written specifically to benefit landlords, and these disadvantage renters directly. The whole ‘fair share’ of taxes argument presumes that the aggrieved group would pay less if others paid more. This wholly unsupported. Government extracts what citizens will bear.
    - joshlemer 5y ago
      Well I guess in that framing, I as a renter am expressing that I am not willing to bear this tax burden, and so will be voting accordingly.
      - jl2718 5y ago
        You should always vote for less taxes on yourself. Voting for more taxes on other people does not reduce your taxes.
        medvezhenok 5y ago
dfas23 5y ago
This is terrible, people would just never sell their homes.
- joshlemer 5y ago
  Real estate investors have to pay capital gains on properties they sell, do they never sell their properties?
  - tempestn 5y ago
    That's not comparable. RE investors are buying with the intention of selling and realizing an after-tax profit. For most individual homeowners if they're selling, it's to buy another property. Say you own a $1M home, and when you sell you're going to face $100k in taxes based on the gains to date. Now if you're considering moving you can only afford a $900k home instead. That would present a disincentive to moving.
digianarchist 5y ago
I think banning, or severely restricting, HELOCs is a better idea. Canada also doesn't have inheritance taxes or a wealth tax. The problem with taxing primary residencies is that homeowners aren't usually selling their homes to exit the market, they're upgrading or downgrading.

seanc 5y ago

In exchange we get population mobility; without this tax break homeowners would be very reluctant to ever sell their house and move someplace else. Also, housing capital gain isn't completely tax free; we all pay increasing amounts of property tax as the value appreciates. Although those taxes are baked into rents so maybe that's a wash depending on one's point of view. Policy is hard and unintended consequences are around every corner. For example, I could see an argument for changing the scheme to a special rebate. So you pay your capital gain tax when you sell your primary residence but then get it all refunded when you buy another one. But then this scheme would wind up dinging senior citizens with a massive tax hit just when they're trying to put together cash for some end-of-life care.

joshlemer 5y ago
But they cap tax free gains in the states at 200k, do we see mobility barriers in that jurisdiction? Also, I believe what you're describing does exist in the states in the form of a "1031 exchange".
tempestn 5y ago
You don't pay increasing property tax as the value appreciates. Property taxes on average increase with inflation, not with house prices. Only if your property appreciates more quickly than others do you end up paying more.

jl2718 5y ago

What exact problem are you trying to solve? I can think of a lot that this would cause. Analyze any specific tax policy deeply enough and you’ll find that there is no way to fix something that starts off as unnecessary and harmful.

joshlemer 5y ago
The problem is that poorer people or renters generally are subsidizing richer people or homeowners generally. Depending on if your view is that Canadian governments are too big or too small, you'd say that renters are being unfairly overtaxed and should be given a break, or that homeowners are not paying their fair share and should be taxed more.
- jl2718 5y ago
  A lot of home owner occupant tax advantages were specifically introduced to disadvantage landlords. If you get rid of them, it may make the problem worse because there will be no way out of the rental trap. Separately, there are many tax laws that are written specifically to benefit landlords, and these disadvantage renters directly. The whole ‘fair share’ of taxes argument presumes that the aggrieved group would pay less if others paid more. This wholly unsupported. Government extracts what citizens will bear.
  - joshlemer 5y ago
    Well I guess in that framing, I as a renter am expressing that I am not willing to bear this tax burden, and so will be voting accordingly.
    - jl2718 5y ago
      You should always vote for less taxes on yourself. Voting for more taxes on other people does not reduce your taxes.
      - medvezhenok 5y ago

dfas23 5y ago

This is terrible, people would just never sell their homes.

joshlemer 5y ago
Real estate investors have to pay capital gains on properties they sell, do they never sell their properties?
- tempestn 5y ago
  That's not comparable. RE investors are buying with the intention of selling and realizing an after-tax profit. For most individual homeowners if they're selling, it's to buy another property. Say you own a $1M home, and when you sell you're going to face $100k in taxes based on the gains to date. Now if you're considering moving you can only afford a $900k home instead. That would present a disincentive to moving.

digianarchist 5y ago

I think banning, or severely restricting, HELOCs is a better idea. Canada also doesn't have inheritance taxes or a wealth tax. The problem with taxing primary residencies is that homeowners aren't usually selling their homes to exit the market, they're upgrading or downgrading.