OpEd: Don't put capital gains tax on people's homes

If the government really wants to reduce anxiety among middle-class Canadians, it should immediately rule out this ill-advised and potentially devastating tax grab.

If Justin Trudeau is serious about supporting Canada’s middle class, his government should immediately and unequivocally rule out any change to the exemption of principal residences from the capital gains tax, a move most recently and prominently rumoured in a report from RBC Economics.

For most of us, the single biggest purchase we will make is our home. It’s usually a key part of people’s retirement security. A reversal to the long-standing policy of not subjecting home sales to capital gains tax would cause considerable difficulty to the retirement of many Canadians.

More than two-thirds of Canadians own their own homes. The brunt of the tax hike would be inflicted on the very middle class “and those working hard to join it” that the Trudeau Liberals have mentioned in almost every policy document since the prime minister won his party’s leadership. Secondary properties and investment properties are already subject to capital gains tax. Wealthier Canadians with multiple properties would be less hurt by this ill-advised move than middle-class families, many of whom would be devastated by it.

Defenders of extending capital gains to the sale of principal residences claim it will help cool a housing market that’s currently heating up amidst low inventory and increasing demand and thus make home ownership more attainable for younger Canadians.

But a survey from Royal LePage released earlier this year showed that 48 per cent of Canadians between the ages of 25 and 35 already own their home, with a quarter of them having bought in the last year — i.e., during the pandemic. Continuing low interest rates and reduced competition for starter homes in the pandemic appear to be the reasons. But whatever the explanation, with more young Canadians already entering the housing market no government capital gains tax grab is needed to ease their way. The same survey showed 84 per cent of non-homeowners intending to invest in home ownership in future, two-thirds of them within the next five years.

Alberta, my home province, has been hit particularly hard by the events of the last few years, between the pandemic and the impact of a global oil price war. For many, the equity built up in their homes has been a helpful lifeline in a difficult time. They shouldn’t have to see it used to pick up the tab for the debts the federal government has been racking up.

Some readers may believe the government has already ruled out this change. But in 2019 an Ontario Liberal caucus submission for the 2019 election platform mused about “a sliding scale on the Capital Gains Tax on the sale of principal residences.” When Conservatives publicly pointed this out, the Liberals swiftly denied it.

In 2020, after it emerged the Canada Mortgage and Housing Corporation (CMHC), a federal Crown agency, was paying $250,000 for a UBC-affiliated study that criticized the lack of capital gains tax on sales of principal homes the government again denied that this policy change was on its radar at all.

Of course, before the last election the Liberal government also claimed that the federal carbon tax wouldn’t be raised over $50 per tonne but then barely a year after the election unveiled a plan to raise it to $170 per tonne. The thing about trust is that it takes a long time to repair it when it’s broken.

It’s been a very difficult year for many Canadians. If the government really wants to reduce anxiety among middle-class Canadians, it should immediately rule out this ill-advised and — for many families — potentially devastating tax grab.

Originally published in the Financial Post.


Erika Barootes for Senate