Plenty of reasons to oppose a suggested new home equity tax

Recently, my email inbox, as well as a significant number of calls to my office, raised significant opposition to a proposed annual home equity tax.

The government has stated it will not implement a home equity tax but the overwhelming feedback on this topic came as a surprise to me, as this was not a major media story, nor had I raised this topic in a weekly report.

Because of the level of response I received however, the proposed tax is the focus of this week's report.

First off, what is it?

Recently, a Canadian Mortgage and Housing Corporation (CMHC) funded report, by a group known as “Generation Squeeze,” recommended an annual home equity tax on residences valued in excess of $1 million. The proposed tax would be 0.2% for homes with a value of between $1 million and $1.5 million and would increase to 0.5% for home valued up to $2 million. It would ultimately increase to 1% for homes valued at more than $2 million and would be payable annually, like income taxes.

What if you could not afford to pay the annual home equity tax?

The program would be designed to defer the balance owing with a rate of interest charged on the outstanding balance. The idea being that the balance owing would be paid when the home is sold, or the title transferred through an inheritance.

How would this make housing more affordable?

In theory the government would use the tax revenue to invest in affordable housing. The report's author also believes it would create a disincentive for those who invest in housing for a monetary return.

My thoughts?

To be candid, I oppose this tax proposal. As has already been shared with me, there are residents who now find themselves living in homes with a value in excess of $1 million and who would be subject to such a tax despite not having purchased a “million dollar home”. As these individuals point out, they could never afford to buy a million-dollar home.

On the surface they could sell and cash in on the increase in their home’s value but, as has been pointed out, with the average price of a home in Kelowna now more than $1 million, it is pointless as the gain would be wiped out trying to buy in the current market.

As we have seen large jumps in home values throughout B.C. in recent years, it would be only a matter of time before more and more homes qualify to pay this tax, regardless of their household income.

It has also been pointed out that selling a “million-dollar” home in itself can negatively impact your equity as real estate commissions and the B.C. property purchase tax are much higher on homes with a value in that price range.

As an individual shared with my office, he or she is only a “millionaire” homeowner on paper and could not afford to sell and buy another home at the current market rate, so it is all relative.

I have heard other reasons why residents are opposed to this idea.

One common question is: What happens in the event that housing markets decline, having a natural effect on reducing your home's equity while, at the same time, the home equity tax you owe would continue to increase?

There is also a challenge when the value of the home you own does not necessarily accurately reflect your household income and, by extension, your ability to pay a home equity tax.

From my own perspective, I don’t believe the government has a revenue problem that requires a home equity tax. The challenge is spending. As an example, the current federal government has invested in the Asian Infrastructure Investment Bank.

I believe our shares in this bank should be sold as those funds would be better spent investing here in Canada, building Canadian infrastructure.

My question this week:

Do you support the idea of a home equity tax to fund affordable housing?

I can be reached at [email protected] or call toll free 1-800-665-8711.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.