The sticky web

Has a tax ever made things better?

The people we’ve elected lately sure think so. Canadians face not only some of the highest marginal tax rates in the world (topping 54% on incomes – maybe more next Tuesday), but also sales taxes (to 15%) and now a bevy of levies on our fav asset, houses.

Nope, not just property taxes (increasing by double digits in lots of places), land transfer tax, and non-locals tax, but big hungry new fees for selling or using your own property in a way the government doesn’t like.

Let’s review a few of them.

The Residential Property (Short-Term Holding) Profit Tax Act
Have the BC Dippers ever met a tax they didn’t like? Nah. And they want more of them, apparently. So now Canada’s first dedicated capital gains tax on residential real estate is officially a thing.

The NDP says it’s targeted against ‘speculative profiteers’ who deserve spanking for making housing less affordable for average people (who will never afford average homes in most of the province). The real estate industry says phooey. This will make places cost more.

The tax is on any profit from selling a home within two years of buying it. For the first year it’s a stiff 20%, trailing off to zero after 24 months of ownership. It applies to any house, condo, assignment or pre-con deal. It will come into effect in January, which means anyone who bought a property in 2023 and must sell next year will be caught in Premier David Eby’s sticky web.

There are exceptions for life events, like death, divorce, bankruptcy, job loss or illness. But no exception if you need to move because your neighbour is a tool, or downright dangerous – or it you’re financially over-extended or can’t afford your mortgage renewal. And Indigenous people who own real estate, for some reason, are excluded. They can apparently flip all they want.

Realtors say it’s an idiot law because it will discourage people who want to sell from doing so, thereby leading to fewer listings. And less inventory when demand is rising (which will happen as rates fall) means higher prices. So the tax, they claim, will backfire.

The Underutilized Home Tax
This is a Chrystia tax most people mistakenly think affects only evil foreign property owners who must now cough up 1% of the value of their holdings annually because they are, well, evil. Lots of non-evil locals have received notices about the UHT, which they ignored thinking it did not apply.

Big mistake. If you’re on the list, and don’t file to claim an exemption and provide information, you’ll be billed $5,000 by the CRA. Bummer. And the 1% tax is levied on the greater of the assessed value or the most recent sale price of the property. If you want to claim that a recent valuation is lower, you must pay for a professional appraisal.

What the feds are trying to do is whack non-Canadian owners, but the UHT is clumsy, brutal and also sideswipes a lot of unsuspecting little beavers who will fail to file the required paperwork and face penalties.

For example:

• Citizens who own their homes in a trust, like seniors who have set up joint spousal trusts; or those on life leases;
• Adult children who hold residential property in title for a parent, where it results in a trust relationship;
• Anyone owning their property as a partner in a partnership;
• Shareholders in a Canadian corporation or incorporated small business that owns Canadian residential property.

Is that you? Failure to file is a five grand hit. And a great example of how capricious and unthinking the tax system can be.

Residential Property Flipping Rule
Another federal initiative, recently extended for a five-year period and on top of BC’s new two-year capital gains housing tax. Ottawa says anyone “purchasing real estate with the intention of reselling the property in a short period of time to realize a profit” should be taxed. Of course, this runs counter to the principal residence capital gains tax exemption, but the feds are good at sucking and blowing. It also will make selling rare, decrease listings and pressure prices. But, you know… sounds good.

There are three tax outcomes when you sell a house. Normally gains are untaxed under the PR exemption if you live there. If you bought the place as an investment, rented it out for a while, then sell it for a profit, that’s taxed as a capital gain (50% is free and 50% taxed at your marginal rate). If you buy, renovate and sell, the profit is considered business income and 100% is added to annual taxable income.

The flip tax means any sale occurring within a year of the purchase date is in the latter category. All profit is viewed as income and lumped atop your other earnings, and taxed as such. This applies to pre-cons and assignments, too (which are now also hammered with HST).

There are exemptions for life events, but not for financial distress or neighbourhood terrors.

Finally, there are Vacancy Taxes. Vancouver started it. Other places followed, like Ottawa and Toronto. Every single property owner has to file an annual declaration, or be fined. The tax is withering – up to 3% of assessed value annually, so it doubles or triples ownership costs. And it means the state is requiring you to sleep in a particular house or unit for 183 nights a year, or become an enemy of the people.

Some worry if this will be extended to unused bedrooms in the homes of retirees whose families have moved out. With this level of political stupidity, intrusion and disrespect for property rights, they have cause.

About the picture: “We had a cloudy day for the eclipse here in Westport, Ontario,” writes Joel. “Our dogs Spudd and Pistache felt left out seeing us wearing our fancy eclipse glasses so we tried to help them feel included. As it turns out they weren’t too impressed and Spudd decided it was more fun to chew the glasses than wear them. We’re hoping Pistache will soon forgive us for subjecting him to his photo.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.