B-boy 2

When Justin Trudeau stood before a half-built house in Hamilton on Tuesday and announced the Liberal housing plan some things were not exactly clear. Now they are. And it’s terrifying.

The man who’s presided over a 77% increase in GTA real estate values said his government will bring in “a TFSA for first-time homebuyers”. So people under 40 can save $40,000 in a tax-free account then use the money for a down payment.

That seemed oddly unfair. A tax shelter only for folks under forty? Seriously ageist. And letting couples chunk $80,000 into the new TFSA when it takes almost seven years for spouses to accumulate that amount of room in a regular TFSA? Seriously preferential. And a registered vehicle where withdrawals are allowed for only one reason? A serious catalyst for higher real estate values.

But wait. This is not what the Liberals are planning.

Hours after he spoke, this appeared on the party’s website:

We will introduce a tax-free First Home Savings Account to help young Canadians afford a downpayment, faster. Combining the features of both an RRSP and a TFSA, this plan will allow Canadians under 40 to save up to $40,000 towards their first home, and to withdraw it tax-free to put towards their first home purchase with no requirement to repay it.

This would allow young Canadians to set aside 100% of every dollar they earn, up to $40,000 toward the most important investment they will make in their life. If the funds are not used for a home purchase by the age of 40, they convert back to normal RRSP savings.

Whoa. So it’s really an RRSP – a registered retirement savings plan – but with nothing to do with retirement? This means the new thingamabob would run parallel to existing RRSPs – where the Home Buyer’s Plan already allows a couple to raid $70,000 in savings for a down payment without paying tax. It more than doubles their financial clout. In fact, it goes further. When those of us slightly over 40 contribute to our TFSAs we must do so with after-tax income. But Trudeau’s new Millennial gift would allow the kiddos to deduct their forty grand from taxes.

Like investing in an RRSP, you are able to deduct the savings you invest from your income when it goes into your First Home Savings Account. Like investing in a TFSA, this money will be able to compound and grow tax-free until you withdraw up to a maximum of $40,000. To ensure this supports genuine savings towards a first home and the people who need it, integrity measures will be put in place to deter tax avoidance.
Will it stay tax-free?
When you take it out to put towards a downpayment, it still stays tax-free and doesn’t get counted towards your income. Tax-free in, tax-free out.

The government would allow buyers to contribute and invest, earn tax-free capital gains while deducting 100% from taxable income. A significant advantage. Then, as with a TFSA, they could use the cash to buy a personal residence, paying no tax on the withdrawal. Unlike the RRSP Home Buyer’s Plan, there’d be no requirement to repay the money into the registered plan over a number of year, lest it become taxable.

To be clear, nobody in society gets a deal like this today. Nobody.

By allowing a couple to place $80,000 into the TFFHSA, write this off taxable income then use it to buy a house with a tax-free release from the account, guess what? You and I are financing the down payment. It becomes a taxpayer- subsidized purchase of real estate. It’s a gift. And if implemented every kid in the land would be a daft idiot not to snorfle up the benefits – creating a lot more real estate demand. And higher prices.

In fact a couple could plop $70,000 into their RRSPs, collect the tax refund and use that to help fund the TFFHSA, receiving yet another tax deduction for exactly the same money, which would then grow tax-free and could be withdrawn (again, tax-free, along with the RRSP funds) to buy a house which would eventually yield a tax-free capital gain. Breathtaking.

Compare that to the deal Mr. Trudeau gave you when, in 2015, he gutted TFSA room used for retirement. And all contributions are from income you already paid tax on.

Apparently fiscal sucking-and-blowing is cool when a leader’s desperate to cling to power.

There’s more, of course. Also lost yesterday was Trudeau’s commitment to crash REITs, or real estate investment trusts, because he doesn’t understand them or the role they play in providing thousands of well-run urban rental units.

We will undertake a review of the tax treatment of large corporate owners of residential properties such as Real Estate Investment Trusts (REITs) who are increasingly trying to amass large portfolios of Canadian rental housing, putting upward pressure on rents. We will put in place policies to curb excessive profits in this area, while protecting small independent landlords.

By the way, T2 also quietly committed to raising the CMHC insurance limit by a whopping 25%, to $1.25 million. That makes 20x leverage available to a lot more people for a lot more properties. Along with the slashing of insurance premiums (also announced yesterday) you can be certain that, if elected again, Mr. Trudeau will preside over a housing gasbag that goes from historic to epic.

About the picture: “Great work on the blog and your tireless efforts to educate the Canadian public on financial matters,” writes Ralph in his MSU. ” The dog in the photo is named Duke and he is my daughter’s and her boyfriend’s dog.  He is my best buddy and I always enjoy having him over at our house.  He is proof that dogs love unconditionally and are truly man’s best friend. Keep up the great work!”