Should Canada introduce a capital gains tax on housing sales?

The Globe and Mail‘s recent article has caused quite controversial reactions, as it stated that Canada’s red-hot real estate market is the reason why there should be a capital gains tax on the sale of principal residences.

The editorial board admits it could be the most unpopular tax, but it says the idea is worth discussing because of huge tax-free gains made by current home sellers.

“Of course, no one likes taxes. However, it’s a large loop hole in the tax code, and it motivates Canadians to bring more money into housing,” – the article says. “We’ve seen real estate prices in Canada’s big cities having grown by 270% since 2000.”

The Department of Finance tracks the gains the government misses by not taxing home equity on principal residences. In 2021, it has reached $7.1 billion already.

“Today, due to the housing tax break, the benefits from it flow into the deepest pockets,” – the piece says. “A $200,000 gain on the sale of a $300,000 home is tax free. The same scenario works in case of a $10-million gain from the sale of a $15-million property.”

However, the Globe believes the chances for this tax to be introduced are low.

In July, a columnist Andrew Coyne wrote an article on this topic, saying: “If homeownership were not so (artificially) financially attractive, more people could prefer renting. As a result, we’d see rental supply rising, meeting the demand. In case of less distinction between what you can purchase and what you can rent, fewer Canadians would decide to take on more house than they can actually afford.”

The article has caused the following comment on Twitter from former CMHC CEO Evan Siddall: “…interesting observations on tax-free gains for housing — *NOT* under consideration, however, and the Government has shown no interest in it.”

With more than 900 comments on the Globe‘s recent piece (most of them being negative), it’s quite obvious that a government that will try to introduce such a tax will face a wave of criticism from angry homeowners, two thirds of which are Canadians.

Nevertheless, those who support the idea are sure the opposition is not a reason to stop. “It doesn’t mean the idea is not worth pursuing,” – Coyne noted. “Just like with most proposals to take away someone’s tax break, the stronger the opposition, the better the idea.”

In our opinion to tax everybody would not be beneficial and actually will bring more harm. Supply is the biggest problem right now. All levels of governments should concentrate on relieving the supply problem Canadian housing market is facing for years. However, if any tax has to be introduced it should be done in stages, for example if you are selling within 1 year from the purchase and removing the tax completely after 3-4 years of owning. This might remove speculative flipping from the market and somewhat ease extremely tight conditions.