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 – the GS Lab proposal
|House value tier||Annual Tax rate|
Table 2 – Sample tax results
|House value||Annual Tax|
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.