Why the Liberal plan to tame house prices is actually a tax grab from Toronto and Vancouver

Federal elections always feel a bit like Christmas from a municipal point of view, as party leaders try to prove how much they care about local issues with sacks full of policy gifts.

Our current campaign is certainly no exception. The federal Liberal platform, for example, makes new promises to Toronto on everything from money for electric school buses to banning handguns to fighting gangs.

Yet hidden away among these Liberal election goodies is a little-noticed package that ought to elicit shudders of fear from city halls. If Prime Minister Justin Trudeau wins on Oct. 21, one of the most important and sacrosanct sources of municipal revenue could come under direct assault by Ottawa.

“We will … [apply] a one per cent annual vacancy and speculation tax on applicable residential properties owned by non-resident, non-Canadians,” the Liberal platform declares, promising what amounts to the beginnings of a federal property tax. This concrete proposal is not to be confused with a controversial capital gains tax on home flippers contained in a 2018 Liberal caucus memo since disavowed by the party and its author, Toronto-area Liberal MP Adam Vaughan. This is an entirely separate — and equally bad — idea.

The Liberals’ one per cent a year federal property tax is meant to scare off foreign buyers of Canadian real estate and thus tame prices. It’s hardly a novel idea. Both Ontario and British Columbia, home to the two priciest housing markets in Canada, already have similar taxes doing the same thing.

Across the Greater Golden Horseshoe, Ontario’s Non-Resident Speculation Tax levies a 15 per cent tax on real estate purchases by non-residents of Canada. It collected $ 181 million last year, although its impact on real estate prices remains highly debatable. The same is true with B.C.’s Speculation and Vacancy Tax, which hits foreigners with an annual two per cent annual property tax, and raised $ 115 million last fiscal year.

To the extent home prices in Toronto or Vancouver can be moderated by a tax on foreign buyers, the provinces — which have jurisdiction in this area — are already doing plenty. An additional one per cent for Ottawa just piles on existing efforts without any co-ordination or consultation.

Plus, outside Canada’s two biggest metropolitan areas, foreign speculation is not a real concern. Actively trying to discourage non-residents from buying homes in Atlantic Canada, for example, will do those provinces real harm. So why bother?

“This is not a good idea,” says tax expert Jack Mintz. “Housing markets are quite local but the federal government by necessity has a one-size-fits-all national approach.” Mintz is the Presidents Fellow at the University of Calgary’s School of Policy Studies and author of numerous reports on taxation and competitiveness.

Mintz points out a federal property tax would also require Ottawa to piggyback on municipal and provincial assessment systems, since it lacks its own national database to track property values. But since methodologies vary significantly across jurisdictions, knitting all this data into one catalogue will inevitably create problems of unfairness on a national scale. The buyers’ tax could also pose an obstacle to recruiting high-priced foreign talent to Toronto’s globally competitive high tech and entertainment sectors.

Mintz’s biggest concern, however, is the precedent an incipient federal property tax will set. “This has never been the federal government’s tax area,” he points out. Property tax is far and away the dominant source of municipal revenue. Allowing a higher level of government to squeeze its way into even a portion of this revenue stream poses a major threat to the security of future municipal finances. Keep in mind, the $ 200 million to $ 300 million this new federal tax is expected to earn will mostly come out of Toronto and Vancouver. That’s money those cities can’t earn.

And once Ottawa creates the infrastructure necessary for assessing and taxing property values nation-wide, why stop at foreign speculators? The real risk here lies in the federal government realizing this new tax could become a reliable and convenient way to get at the vast asset base held by Canadians homeowners. After all, when did Ottawa meet a new tax it didn’t love forever?

Peter Shawn Taylor is a freelance writer and editor based in Waterloo.

Get more business in your inbox

Get the business news and analysis that matters most every morning in our Star Business Journal newsletter.

Sign Up Now

TORONTO STAR

Related Posts You Might Like: