The Canadian Real Estate Association, the Toronto Regional Real Estate Board and other boards across the country publish extensive resale housing market statistics. We also analyze trends and identify factors driving significant shifts in unique markets across the country. We are constantly considering a wide array of policy options to address trends that are unsustainable or pose a threat to the stability of housing markets in Canada.

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When it comes to housing policy, taxing capital gains on principal residences is often raised as a solution. But a tax on Canadians’ homes is not the silver bullet some would have you believe. In fact, the introduction of a tax would be excessively complicated with far reaching implications and would likely backfire.

To return to first principles, consider the simple economics of supply and demand. In 2020, home sales continued trending upward to reach a record high, while new listings sunk to an all-time low. The current sales-to-new-listings ratio is trending at historically elevated levels, resulting from an unprecedented level of soaring demand that is far outstripping any influx of new supply. Taking this, and historically low interest rates into consideration, the rapid increase in home prices is not the puzzling outcome that some make it out to be.

Population growth is outpacing housing completions and the shortage of housing supply is not an unexpected consequence. Even with the pause on immigration we had this past year due to COVID restrictions, there just aren’t enough homes to keep pace with demand. We can’t tax our way out of a housing supply shortage. Nor should we pump the brakes on the immigration driving population gains that grow our economy. The only answer is to create housing supply, across the entire housing spectrum at a rate that meets demand. It is not a simple answer, but it has the benefit of being the right one. And one that is good for growing our economy.

Creation of new housing supply requires a co-ordinated effort between the federal government, provinces, territories and municipalities. Addressing construction restrictions at the municipal level plays a far larger part in making housing more affordable than a potential new tax would.

All Canadians need to somewhere to live. In most cases, a principal residence is someone’s only residence. If you purchased a house 25 years ago for $250,000 that is now worth $1 million, it is probably still the same home you bought, with some upgrades. Introduce a capital gains tax on principal residences, and just like that, you are now taxed as a millionaire.

A capital gains tax would effectively create a disincentive for anyone to ever list their home, and further exacerbate the already dire lack of housing supply across Canada. The tax could very well put upward pressure on housing prices rather than cool them.

The spin-off effects are myriad. Canadians would think twice before moving within the country for an employment opportunity, putting more pressure on major urban centres while thwarting the efforts of smaller communities to grow. Retirees would have no incentive to forgo their equity, and therefore would not downsize unless absolutely necessary. Most Canadians have made assumptions about their retirement based on the value of their homes. This proposed change would disrupt those assumptions overnight, while very possibly shattering their presumed financial stability.

It was also suggested that capital gains from housing be treated like other forms of investment, such as stock. While that may appeal from a uniquely financial perspective, you can’t live in your stock portfolio. Capital gains on principal residences are treated differently because they serve the far more important purpose of providing a place for us to live and enabling freedom of labour mobility.

Attempting to extract additional tax revenue from Canadians through their homes would be wildly unpopular for good reason. There are other avenues to pursue: targeting speculation in the market; incentivizing other classes of investment; and most importantly, building more housing supply.

Realtors help people find homes, and we want to continue working toward real solutions that make it easier for Canadians to find a home they can afford. A capital gains tax on principal residences simply isn’t the answer.

13 COMMENTS

  1. If a property is bought and sold at a profit within a year, tax maxmimum. If sold within 2 yrs a lesser amount and after 3 years a lesser tax still. After 3 years zero. Instituting a capital gains tax will raise prices because it will be passed on to the Buyer!As a more extreme example against cap gains tax, why should your parents and mine, who bought their homes (say) 30 or more years ago and are counting on the proceeds to help in their retirement be penailzed.
    “Flipping” is a business and should pay full tax on their profit accordingly..

  2. Tax homeowners that have bought and sold in 2 years or less, unless those homeowners have had to move due to a job transfer, loss of employment, loss of maritial status, loss of spouse’s income, loss of health.

    • In addition to the above, land transfer tax should be increased to buyers and sellers that are flipping homes under the pretence of principle residence.

  3. John and Michael…. it’s so refreshing to read some common sense and facts about the housing market and far reaching implications a capital gains tax would have on principal residences.

    I find it interesting how the same people whom advocate for mass immigration are usually the same individuals and groups against any type of building or expansion – for any number of reasons. Canada was built by hard working immigrants, so there is no argument we need to continue merit based immigration, while also helping refugees flee war and extreme poverty. Even during a time when there is practically no immigration, due to the pandemic, housing demand has drastically increased. Protecting sensitive eco systems and conservation land needs to be a top priority. There is plenty of land ripe for for development, so, let it happen.

    Pure and simple, not everyone wants to live in a high rise condo, especially those with families. Taxing foreign investors in Vancouver and The GTA has accomplished nothing, other than drive investors to other jurisdictions, specifically Quebec or out of Canada entirely. I say, let foreign investors buy as many properties as they please, as these properties usually end up in the rental pool anyway. We need all the foreign investment we can get right now. With that being said, the Singapore model should be tested in markets throughout Canada.

    Land transfer tax, HST (new construction), and various other fees are already paid to various levels of Government whenever a property changes ownership. Property tax is another tax, most of us are happy to pay, as we see value in it. A capital gains tax would be double dipping and punish everyone for owning a property and working, often their entire working life to pay it off.

    The Federal Government under Trudeau has already tried meddling in the housing market by introducing first time buyer incentives. This backfired, as it added more buyers to an already under supplied market. Additionally, the Federal Government now owns a stake of those properties. What a bureaucratic mess.

    I hope this is made a top issue in our next Federal election. The Federal Liberals under Trudeau need to find creative ways to raise cash – and fast. The cupboard was bare when the pandemic hit. They will do anything to distract and divert away from this issue. Unfortunately, the media can’t be trusted to make this issue a priority, as most of the media is now receiving subsidies from…… the Federal Government.

  4. We still deal with death and divorce which ultimately means that the house is being sold. I don’t believe for one minute that the government is not looking at this on their agenda of where they can find money to support their spending. In fact I believe that the capital gains tax will be going up in the future for rental properties being sold. Our government needs funding and they will find that the ageing population which will be passing away or moving into Long Term Care facilities will be an easy target to tax. It is not just a rumour what they are working on capital gains tax on personal residence. Baby boomers are 27% of the population and have a lot of equity in their houses. I am not convinced of what you are saying and in future we will see what occurs with our government as they make a plan to pay back the money they have spent.

  5. The fact is, if one truly examines the US situation, it is likely that charging capital gains on the sale of a principal residence would be a wash in terms of tax collected. In the US, one can deduct mortgage interest from one’s income for income tax purposes – that’s years and years of a substantial tax reduction even at current low interest rates and is a boon to property owners when mortgage rates are higher. When calculating capital gains on a house sale, one can deduct the cost of any improvements. I’m not sure, but property taxes might also be deductible. And then the US also provides a $500,000 deduction on any remaining capital gain on a house sale. If you add all those things up, I don’t think the government will be any further ahead. What we need is more supply. And that doesn’t mean loosening development rules … 70-storey condo towers are not the answer either. We need the “missing middle” – intelligent development that builds livable neighbourhoods.

  6. As realtors we must be realistic. Government spending has been out of control for years and Covid has just added an extra 15 years of deficits to the debt level. The fact the citizens of Canada elected a government committed to running deficit budgets and expenditures show us that Canadians have no concept of the negative impacts theses policies will generate. Governmental policy has been very clear in showing they no longer believe in over 800 years of common law property ownership rights for property owners. The concept of eminent domaine has become the clarion call and this means government considers your property as theirs to use as they see fit. Note all the laws, legislation, policies and municipal interferences with rights of property owners to use their property for their own benefit which say your property isn’t really yours if you do not comply with our authority. As such they charge exorbitant land transfer fees and tons of various bylaw permit fees which are cash revenue generators rather then revenue neutral taxes. With the recent Supreme Court ruling re carbon taxes, that states the government has the authority to ignore the constitution, we need to realize that the bundle of rights that we sell to our clients when they buy real property is an illusion. As such, government has the right to dispose of its assets when it needs money and so, if government by eminent domain controls your land it has the right to demand a share of your profit.
    As realtors it is upon us to defend property ownership rights of our clients. Unfortunately when it comes to defending property rights against government infringement our associations have been very inept and our memberships have largely failed to even voice a concern.
    So if we are not prepared to fund a 5 million dollar constitutional battle to defend property common law rights property ownership rights will become extinct.
    But look to the bright side maybe we will get to write our mortgage interest costs off as a cost of the real estate investment we will be taxed on!

  7. You assume every property has gone up in value since they bought it. What about the markets where the prices are down 25%. Will they receive a tax credit?

  8. The answer to the housing shortest that is pushing up prices and scarcity in most areas is not new taxes or a capital gain tax , it is to create more housing!
    The second largest country by land mass on the planet should be easily able to accommodate all its housing needs and any future growth . With a relatively small population of approximately 35 million people and massive land areas all across our great country that people want to live in you would think we can figure this out.
    Governments have to be better and more streamlined about the creating process of housing development of all types .Currently it is a process in most parts of the country that takes years , massive amount of capital and expertise to navigate thru to completion.This is the real problem. Assemble groups of people that are home buyers and renters and along with builders , developers , realtors to sit on residential planning committees. Identify the areas ideal areas for new housing development. Also Identify all the millions of acres that lay idle in all levels government land inventory. Vacant land or buildings that are not being used along with all current land identified and slated for development . Environmentally sensitive or lands being used for public open space should be excluded for development but all remaining areas should be open for housing and development.
    Canada with its natural resources and beauty should be a world leader in available housing for all people at all price ranges .The economic prosperity created by new housing could be a driver of economic growth and happiness for years to come.
    As a country We are a ideal safe haven for our citizens and future immigrants looking for a better life .Identifying and Providing better housing options for all people should be a top three National priority right up there with health and environment. Having a roof over ever ones head should a basic human right and in Canada we should be a world leader for this and a increase in supply of housing is the answer.
    Mario Fazio
    Sarnia, Ontario

  9. “A capital gains tax would effectively create a disincentive for anyone to ever list their home, and further exacerbate the already dire lack of housing supply across Canada.”

    In over 30 years of the real estate business, this has got to be one of the stupidest statements I have ever read about real estate sales, and there have been a lot.

    Perhaps the authors should Google ‘current real estate sales or market in the US’. A market with a capital gains tax I believe…..

    My American clients seem to deal with the whole issue quite comfortably, though not happily I will admit.

    Given their positions in our industry I would have expected more from them both.

    • Craig… If having an open discussion about taxing capital gains on principal residences is one of the stupidest statements you have ever read about real estate sales… you have already lost the argument.

      You fail to mention our American friends are able to deduct their mortgage interest, property taxes and closing costs on their Federal income taxes. There is also a tax exempt amount, depending on marital status. The Federal Government in Canada has no intention of affording us those benefits. They need to find cash and quick. Punishing homeowners is the wrong approach. That being said, since this is so stupid, why not make this a voluntary tax? All those smart people out there whom want to pay more taxes to a Government which has blown though billions on pet projects, climate programs which accomplish absolutely nothing, WE Charity scandals and cash to corrupt dictators, I say, be my guest.

    • I think for any country that has huge immigrant influx will always face supply issues, but when they graduate to first time home buyers, that’s where the question arises- are there any affordable properties within reach. For which we need to understand why prices rise abnormally quick. Short term speculation is necessary to stimulate the market/ do arbitrage. Overdoing creates disincentive to hold investment for medium term, creating instability in short term. It is important to classify not just as a primary residence but holding period as well. Let’s say to discourage flippers, we may introduce additional tax if sold again within 6 months. This should not affect seniors to unlock true equity in their houses, neither affect first time home buyers as they would be in better position to have relatively more negotiating power. Simultaneously it can potentially sensibly slow down the activity. Let me repeat- supply is not a devil for the question our country is facing right now.

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