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You had to figure that governments would eventually find a way to tax the wealth locked up in houses that have soared in value.

Only a federal government with a death wish would touch the personal residence exemption, which lets you sell your principal residence without having to pay tax on your capital gain. That leaves property taxes, which typically treat all homeowners equally by applying the same tax rate against the assessed value of their home.

British Columbia’s NDP government broke with this tradition in its spring budget and went after expensive homes, of which there are plenty in the province. Starting next year, owners of houses with an assessed property valued between $3-million and $4-million will pay an additional 0.2 per cent of what’s known in the province as a school tax. An extra 0.4 per cent will apply on home values above $4-million.

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The angry reaction to this measure reminds us that homeowners consider rising home equity to be off limits to taxation. But do governments? Homeowners, keep an eye on this story. It’s possible that the tax aspect of home ownership is about to change a little bit.

Support for the B.C. government’s school tax measure has come from the Vancouver-based advocacy group Generation Squeeze, which earlier this month launched a campaign called #TaxShift. The goal is to encourage the use of revenue generated by higher property tax on expensive homes to lower taxes in other areas or improve services.

So far, it’s been a tough slog. “We definitely have some angry multimillion-dollar homeowners,” said Paul Kershaw, a professor in the University of British Columbia’s School of Population and Public Health and founder of Gen Squeeze, which focuses on intergenerational inequities.

Opposition to the school tax increase has come from people who say the value of their home has no connection to their ability to afford higher costs. “Seniors who are trying to stay independent and remain in their long-term homes are being squeezed out by excessive taxation, especially on the municipal side,” Brian Phillips, a Vancouver resident and senior, told me in an e-mail earlier in the month.

Prof. Kershaw said the answer is to make property taxes deferrable until you sell, as B.C. already does in some cases for people who are 55 and older and other groups. In B.C.’s case, a modest interest rate is applied on the deferred balance.

The left-leaning Canadian Centre for Policy Alternatives has described B.C.’s tiered property taxes as a way to enhance fairness. “To my knowledge, this is the first move to progressive property taxation in North America, although there are several examples in Europe,” writes Marc Lee, senior economist in the group’s B.C. office.

Property owners may counter that they already pay increasing amounts in property tax every year. But Prof. Kershaw said the total amount of these taxes collected in comparison with the size of the economy has been falling. He said B.C. property taxes amounted to 3.9 per cent of provincial GDP back in 1981, compared with 2.9 per cent now.

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A study by the real estate consulting firm Altus Group says that large tax bases and high property values have allowed Vancouver to cut residential property tax rates for 14-plus consecutive years, and for Toronto to cut rates for nine straight years. For every $1,000 of assessed property value, residents of Vancouver and Toronto pay $2.55 and $6.62, respectively, while the national average is $8.66.

“The amount of money we’re collecting cumulatively [in property taxes] has not kept pace with the growing value in homes, or the growing share of the economy accounted for by real estate,” Prof. Kershaw said.

The challenge in introducing higher property taxes on expensive homes is to strike a balance between generating significant revenue and not targeting the middle class. Prof. Kershaw said the B.C. government’s approach of targeting houses in the $3-million-plus range will cover just 2 per cent of homes and generate $200-million a year. He suggests targeting the most expensive 20 per cent of B.C. homes, which would net more tax dollars but anger more people.

Opponents of B.C.’s progressive school tax haven’t given up and the provincial government is holding its ground. Cities and provinces around the country will be watching closely to see how it all plays out, and homeowners should do likewise.

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