New tax to solve a crisis?
This report by Generation Squeeze was funded by in part by the Canada Mortgage Housing Corporation (CMHC) and National Housing Strategy.
Yes, the very same CMHC whose mandate is to enhance Canada’s housing finance options. In 2020 choose to stop lending to certain types of borrowers (mainly borrowers with higher-than-average debt loads) and forecast a potential 18% drop in home prices from pre-pandemic levels.
Among the numerous recommendations made in the Generation Squeeze report was their recommendation that Canadian homeowners should pay an annual valuation tax. That would range from 0.2-0.5% for homes valued between $1 million to $1.5 million, and up to 1% on homes valued over $2 million.
Where will the tax collected go?
According to the report, that tax would impact 9% (approx.) of Canadian homes (13% of Ontario households and 21% of B.C. households). Would potentially raising more than $4.5 billion for government coffers. Funds could be used to provide benefits to renters, such as “portable housing benefits” or investments in new green co-op and purpose-built rental units.
Results what CMHC is hoping for.
The apparent thinking is that the annual surtax would reduce the tax shelter in housing that, according to the authors. Incentivizing Canadians to rely upon rising home prices as a strategy for savings and wealth accumulation more so than they otherwise would. This, in turn, would slow the escalation of home prices and improve affordability while reducing inequalities. And that the surtax would provide the government with capital that could be used to create affordable housing.
Reaction to the Generation Squeeze report.
The idea of a valuation surtax has been fast and has not been supportive.
While there’s no question that housing affordability is a growing concern for all Canadians, is the answer to tax individuals? They have worked hard and paid with after tax dollars to purchase a home that is worth more than $1 million. Additionally, some are suggesting that the surtax will actually make homes more expensive.
This surtax would, either by design or circumstances, effectively target hard working Canadians. Simply because they happen to live and work in particular regions of Canada. Also because we’re not aware of homeowners are choosing to work and live in a region solely because they feel house prices will appreciate more in value. And that makes it look like the surtax is designed to target homeowners in the Toronto, Vancouver and Montreal – whether intentionally or unintentionally.
If this surtax were to be implemented, how many of your borrower clients would be affected. Are you for or against the idea of a valuation surtax?