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Readers respond: We Should Scrap The Homeowner Tax Break (July 29)
Columnist Andrew Coyne makes a strong macroeconomic case for ending tax exemptions on capital gains from sales of principal residences. However, when he scorns the United States for allowing mortgage holders to deduct interest payments from their taxes, he points to an important problem with his proposal. If these capital gains became taxable like other investments, then all expenses incurred by owners to purchase, maintain and improve properties would become deductible.
The list of such expenses would no doubt be the subject of debate, but it would certainly include mortgage interest. This list of deductible items would lower the amount of capital gains and therefore the tax payable; it would also require homeowners to retain formal, detailed records of all expenses, in order to satisfy the Canada Revenue Agency when properties are sold.
John Sheppard Toronto
I find that columnist Andrew Coyne’s arguments just don’t encompass enough. We should also tax all privately held investments before sales occur. If houses are to be taxed for accumulating value before that value is realized through a sale, then extend the logic to all investments that aren’t tax-sheltered such as RRSPs.
Homes shouldn’t be investment vehicles, but have become so due to rampant price increases in major cities. This is not the case across all of Canada’s small cities, towns, villages and rural properties; an individual can only claim one principal residence, not a cottage nor a second property in a rising market, for tax-free equity growth.
In taxing capital gains, interest paid for borrowing against a property would require annual calculations to offset any equity increase, as is allowed for all Canadian investments and as in the United States. (Let’s remember that U.S. taxes on capital gains from property have not prevented expensive housing in most urban areas such as New York, Boston, Washington and Los Angeles. It seems dubious a tax would offer any flattening of market values here.)
The mechanics for establishing unrealized equity would likely be the same municipal property value used for municipal tax purposes. Where home values differ wildly from one address to another on the same street, where market value is derived through a system of complex and usually inadequate formulas and ratios and where, once again, true value isn’t known until a sale takes place, it’s likely that trying to strong-arm unrealized profit from homeowners would result in rampant injustices. And if, for some reason, values decrease between purchase and sale, would any taxes levied against rising equity that disappeared be returned?
The concept of taxing unrealized equity seems like a poor one on all levels.
Pamela Pastachak Ridgeway, Ont.
I believe columnist Andrew Coyne is correct, particularly when he says home ownership helps reduce capital investment. But the answer to the problem of capital distortion should lie with municipal government.
Property taxes are based on the market-value assessment of a property and the notion that capital gains on property are income streams that can be taxed at the source. The federal and provincial governments have resisted taxing capital gains on homes so that municipalities can tax this money stream for city income.
So the fault would lie with our city fathers. It would be best for government, at all levels, to remove the loopholes, inequities and skulduggery associated with the present property-tax system, then raise these taxes in concert with reducing income taxes.
Gared Daniel Toronto
Kudos to columnist Andrew Coyne for suggesting that nontaxation of capital gains on home sales deserves a serious look.
Homeowners have benefited from massive windfall gains and unearned capital gains, especially those that have held property for five or more years. They did nothing but sleep in bed at night while realizing double-digit returns.
As an alternative to taxing the capital gains, a more modest option would be a sales tax on home sales. Last week, the Canadian Alliance to End Homelessness released a set of proposals to end homelessness over 10 years. The cost is estimated at $53-billion. A 5-per-cent sales tax on home sales would generate $11-billion a year and pay for this worthy goal in just five years.
Steve Pomeroy Senior research fellow, Centre for Urban Research and Education, Carleton University; Ottawa
While I can agree that flipping homes for a profit should be taxed, I can’t agree that this should apply to long-term home ownership, nor can I agree that those who move from city to city for work should be taxed on their (unlikely) gains.
Many Canadians also see their home equity (read: gains) as their final financial cushion. They are often compelled to sell family homes to finance unwanted stays in seniors complexes.
If the government is going to consider such a proposal, then perhaps it should be telegraphed the same way Stephen Harper’s government proposed raising retirement age to 67 from 65. It would not have affected those Canadians who were close to retirement, but would have given others a long runway to prepare for the change.
Stew Valcour Rothesay, N.B.
Columnist Andrew Coyne’s proposal to further tax homeowners would wring the mobility out of labour and housing markets and stymie the evolution of Canadian families.
Thinking of moving for a better job? After tax on a home sale, there wouldn’t be enough left to buy the equivalent elsewhere. New baby? Squeeze in tight, because after tax there would only be enough money left to trade down. Time to downsize? Forget it: Canada Revenue Agency wouldn’t leave enough to cover condo fees.
Taxing gains on principal residences would lock Canadians into place and leave them more financially hobbled after life events, from widowhood to divorce to the birth of twins.
Homeowners already fund schools, policing and more through hefty property taxes, land transfer taxes and sales taxes on renovation and maintenance purchases. Many can’t afford to move because of real estate fees and existing taxes.
It’s a big, free country – but homeowners are in chains.
Cheryl Tibbetts Toronto
If, as columnist Andrew Coyne proposes, a house is an investment and subject to capital gains, then any expenses incurred, as in any investment subject to capital gains tax, should be counted as deductible from one’s personal taxes, such as mortgage payments, municipal taxes, heating and electricity bills, repairs, renovations, etc.
Over the years, these may accumulate so that there is actually a capital loss on the sale of a principal residence.
Robert Yufe Toronto
Scrapping the capital-gains exemption would raise little revenue, since mortgage interest would become deductible. The issue, I find, is that rules for mortgages have let buyers bid up housing prices to where they cannot borrow more. This is easy to address.
A 1994 paper by David Hulchanski showed how until the 1950s, households were expected to spend only 20 per cent on rent or housing, but increasing this percentage has become a self-fulfilling prophecy that has raised the price of homes.
Buyers will be familiar with the TDS and GDS ratios that set the permissible amount of mortgage payments the Canada Mortgage and Housing Corporation allows as a percentage of pre-tax income. Spending the allowable 32 per cent of pre-tax income is close to 50 per cent of after-tax income, and this is too high.
Using after-tax income would make more sense, but a simpler solution would be to gradually reduce the GDS and TDS ratios using a new formula, and housing prices would fall or stabilize in line with the changes.
Brian Graff Toronto
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