Solutions Lab proposes new federal tax on homes worth more than $1M
There is considerable public concern about the level and continued increases of house prices. For several years, CMHC has been funding Solutions Labs about that and other housing issues. Solution Labs âfuel bottom-up collaborative innovation by bringing diverse groups of people together in search of new ways to solve complex housing problems.â
The Lab led by Generation Squeeze (âGSâ) is called “Wealth and the Problem of Housing Inequity across Generations”. The Lab has just reported with ideas they think will make housing more affordable, and make the housing system more equitable between younger and older people, and between homeowners and renters. The 67-page report makes several recommendations of interest to rental housing providers.
In brief, the Labâs main recommendations are:
- A new annual federal tax on owner-occupied homes worth more than $1M
- A reform to the calculation of the CPI for owner occupation costs
- Expanded investment in non-profit housing through the Canada Infrastructure Bank
- Expanded investment in non-profit housing through a new program which would protect homeowners if house prices fall so much that the owners are âunderwaterâ.
This e-Newsletter will focus on the tax proposal.
For more information on all the recommendations, see the report.
The Trudeau Government has not yet provided any official response or reaction to the report and its recommendations. To this point, the government has been clear that the views and ideas contained in this report (and other Solutions Labs) are those of lab participants, and should not be attributed to CMHC or the Government of Canada.
The Main GS Lab Proposal
Rather than addressing housing supply issues, the GS Lab focused on the tax advantages given to homeowners as a major factor in driving up house prices. In the past, GS has proposed the elimination of the capital gains tax exemption for owner-occupied principal residences. (That is a major way in which home ownership is privileged over renting, since rental property owners have to pay capital gains tax, and effectively collect that from renters through their rents.)
When GS was given the CMHC funding for Solutions Lab, it was widely thought that the Lab would recommend ending the exemption from capital gains tax enjoyed by owner-occupiers of principal residences. GS seems to realize that is a political non-starter.
There are already a number of taxes on non-residents, speculators and owners of vacant properties, and new regulations on money laundering, rental housing providers and developers, as well as efforts to increase housing supply. The Lab report says that, despite those measures, house prices continue to rise too fast, and that the problem is the structure of the housing market; and so, more people in the housing market need to be encouraged to invest less in their houses.
The Lab proposes a new federal tax on owner-occupied homes with a value greater than $1M. That would include about 9% of homeowners across Canada, although it would be 13% in Ontario and 22% in BC.
The tax could be deferred until a property is sold (with a market rate of interest). The tax would be graduated so that it would apply at a low rate for the first tier of taxable value, and then at a higher rate for higher tiers of value. See Table 1 for the proposed tax rates and Table 2 for examples.
Table 1 â the GS Lab proposal
| House value tier | Annual Tax rate | |
| from | to | |
| 0 | $1,000,000 | 0 |
| $1,000,000 | $1,500,000 | 0.2% |
| $1,500,000 | $2,000,000 | 0.5% |
| $2,000,000 | No limit | 1.0% |
Table 2 â Sample tax results
| House value | Annual Tax |
| $1,000,000 | |
| $1,200,000 | $400 |
| $1,500,000 | $1,000 |
| $2,000,000 | $3,500 |
| $3,000,000 | $13,500 |
| $5,000,000 | $33,500 |
With the rates of 0.2%, 0.5% and 1%, the tax would generate about $4.5B per year, with very modest amounts being charged to owners with houses of a value up to $1.5M. If the 0.5% rate applied on the whole tier from $1,000,000 to $2,000,000, the tax would generate about $6B per year.
That tax revenue could then be spent on other housing measures, such as more non-profit housing or portable housing benefits for renters.
The tax would not apply to any rental properties
The GS Lab has made it very clear that this is meant to be a tax on owner-occupied homes. Rental properties of any value would not be subject to the tax. The Lab realizes that capital gains taxes apply to rental property which do not apply to owner-occupied property, even though those taxes are paid through rents.
CFAAâs position
Through CFAA President, John Dickie, CFAA participated in the GS Lab. John spoke on the side of lower taxes (making it clear the tax should not apply to rental properties), and on helping renters through portable housing benefits, not just non-profit housing.
Rather than imposing a new tax, CFAA advocates reducing the attraction of homeownership by removing the capital gains tax from rental housing property.
As well, CFAA advocates addressing the housing supply issues by:
- removing the GST/HST from new housing property, and especially from new rental housing property
- reducing government charges on housing development
- speeding up municipal planning approvals
- ensuring that rental housing remains an attractive investment by refraining from imposing new or expanded restrictions.