Adding another tax on your home is not smart politics

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Kim Moody: Target is older Canadians who have paid off their homes and have the good fortune of capital appreciation

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There were a number of reports last week about the prime minister and finance minister meeting with a government-funded think tank to discuss a variety of issues involving “generational fairness,” one of which was the introduction of a home equity tax.

This particular think tank, Generation Squeeze, seems to think that one of the ways to enable the youth to afford a new home is to go after older people who have worked hard historically to save enough to buy a home and pay off their mortgages. Such older people’s homes have often benefited from decades of capital appreciation.

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“Gen Squeeze believes that it’s time to protect real shelters, not tax shelters. It’s unfair to sustain a system in which the hard work Canadians do every day in their jobs is taxed more than the wealth homeowners gain from rising prices while they sleep and watch TV,” it says on its website.

“The first step is putting a price on housing inequity by adding a modest surtax on homes valued at more than $1 million. This surtax will apply only to the top 12 per cent of high-value homes; the vast majority of Canadians won’t pay a penny more. But it will help slow down home prices so earnings have a chance to catch up, demonstrating allegiance to the Canadian dream that a good home should be in reach for what hard work can earn.”

The think tank’s website is full of the usual left-wing victimhood messaging, but it’s quite clear that older Canadians are the apparent problem.

Ignoring that, is a home equity tax a good idea? The short answer is no. Canadians already pay a long list of taxes on their homes, such as municipal property taxes, carbon taxes and GST/HST on new builds, renovations and utilities. In addition, if the eventual disposition of their home or rental property does not qualify for the principal residence exemption, they will also pay capital gains taxes to the extent the property has appreciated.

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How a home equity tax will solve the problem of affordability is a mystery. Proposing new taxes is easy. Governments can literally charge a tax on pretty much anything if they think the policy aligns with its intended revenue targets. What to do once the tax revenues are raised is the tough part. And that’s where many left-leaning fiscal policies fail.

In the present case, if a home equity tax is imposed, the affected properties will presumably — as the above quote suggests — become more affordable for youngsters to purchase. That seems dubious to me. Market value goes back to basic supply-and-demand economics. If demand exceeds supply, prices will increase.

A home equity tax proposal is consistent with the bogeyman approach to housing issues that our current government, supported by left-leaning think tanks, has taken.

First, it was foreigners that were the problem. Accordingly, Canada introduced a ban on foreigners purchasing Canadian real estate (this ban was recently extended to the end of 2026). In addition, it was those foreigners who were “underutilizing” real estate, and so cities such as Vancouver, Toronto and others introduced a form of empty homes tax, and the federal government followed suit in 2022 with its Underused Housing Tax debacle.

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The second bogeyman was those flippers of real estate, so the government introduced the ridiculous and duplicative flipping tax in 2023. The third bogeyman were the evil short-term rental owners and operators who operate in an area that bans short-term rentals, so the government introduced a ridiculous and dangerous rule to deny expense deductions to such people.

And, now, it’s those darn older people who worked hard throughout their lives to acquire and pay off their homes and had the good fortune of capital appreciation.

Housing supply is a multi-faceted and complex societal issue. Continually introducing tax rules to go after people who are the perceived problem is simply politics — and poor politics at that — at the expense of good policy. For example, our country’s housing issues are directly tied to increased and uncontrolled immigration, so our immigration policies need to be amended.

That doesn’t mean, however, that certain existing tax rules that impact housing, such as the principal residence exemption, shouldn’t be reviewed. I’ve long stated, including in a recent podcast episode of mine, that the principal residence exemption is very generous given the unlimited amount that can be claimed. Other countries, such as the United States, have limits on their principal residence exemption.

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Perhaps in the context of overall tax reform/review, the principal residence exemption could be reviewed and better targeted. That would be very difficult given that the exemption is very cherished and enshrined. Any government that took some of the existing benefits away would likely pay a high political price.

Sir Winston Churchill famously stated, “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

History is clearly a good guide. For example, despite the continuous chatter that income inequality could be solved with a wealth tax, the history of such an imposition is horrible and ineffective, so only a handful of countries still have such a tax.

In the present case, given how desperate our current government is for tax revenues to prop up its bloated spending and political fortunes, no one should be surprised at any new form of tax that is floated.

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New taxes, however, are not the answer to our country’s issues. Instead, good governance, leadership and economic policies would go a long way toward uniting our divided country.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at [email protected] and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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