Home speculative tax in Toronto GTA

Thanks for bringing this up, I think it’s definitely worthy of a discussion. My personal opinion is that we will see some form of speculation tax sooner than later. In what form? I’m not sure. However, when you look at other countries or cities with similar problems around the world (UK, HK etc), they typically have what’s called a stamp duty (approx. 15%) on any purchases of a secondary residence or real estate unit. I know this is different than the speculation tax you’re referring to but it aims to achieve the same objectives. I wouldn’t be surprised if Canada adopts a similar measure.

Bbhandssnack wrote: ↑ Thanks for bringing this up, I think it’s definitely worthy of a discussion. My personal opinion is that we will see some form of speculation tax sooner than later. In what form? I’m not sure. However, when you look at other countries or cities with similar problems around the world (UK, HK etc), they typically have what’s called a stamp duty (approx. 15%) on any purchases of a secondary residence or real estate unit. I know this is different than the speculation tax you’re referring to but it aims to achieve the same objectives. I wouldn’t be surprised if Canada adopts a similar measure.

Yes different countries design policies based on their set out future plans; definitely keeping affordability in mind to attract more people so that they can grow and allowing the local to thrive as well collectively. As Canada is looking to invite more talented pool through immigration i think this might be a decisive move for future (giving enough time for existing greedy behavior to cool off a bit).

And i dont think this will completely throws off real estate like in the 70's, just that switching frenzy and multiple possessions might look unattractive (due to difficulty in maintenance during long term, unless sellers are ready to pay additional taxes during sale)

The late 1970s was a different period where there was hyper inflation and in order to battle that, the government had to aggressively raise rates to double digits. That caused the real estate down turn.

As we speak, I think from a policy standpoint taxing on purchase would be more effective than at sale because you’re discouraging the purchase of non-primary residence. If you tax on gains then that’s at exit, so that doesn’t prevent the large accumulation of investment properties with no plans to sell. This would make the supply issue even worse imo. BTW, an important note is that none of these measures had any long term impact on long term prices of real estate.

People who advocate for a speculation tax really have no idea how the tax act works. If you're buying for flipping then it's already business income, which is taxed at your marginal rates. If the profit is high this means it's probably already taxed at the highest tax bracket for the majority of the profit (53.53% combined in Ontario). If the profits are low then it really isn't a problem to begin with since there probably aren't that many people doing it and implementing an additional tax won't be a deterrent. If the tax is being implemented because the concern is that people aren't reporting these as business income but capital gains instead, then what makes you think that people will report their gains for the purposes of the speculation tax then?

The tax is nothing more than pandering for political support to the uninformed.

Bbhandssnack wrote: ↑ The late 1970s was a different period where there was hyper inflation and in order to battle that, the government had to aggressively raise rates to double digits. That caused the real estate down turn.

As we speak, I think from a policy standpoint taxing on purchase would be more effective than at sale because you’re discouraging the purchase of non-primary residence. If you tax on gains then that’s at exit, so that doesn’t prevent the large accumulation of investment properties with no plans to sell. This would make the supply issue even worse imo. BTW, an important note is that none of these measures had any long term impact on long term prices of real estate.

It doesn't matter if the tax is on entry or exit, supply will take a hit if you take investors out of the equation because there will be less demand. You would think that less demand is a good thing since it would decrease prices but the problem is that it won't happen since prices are high because of the high cost to build. What will happen is that builders will just build less since no one will sell at a loss and just sit on land instead.

The problem isn't just with investors that is leading to high prices. The problem is the very people who are proposing to solve the problem, municipal governments. People should really look to their municipal governments and ask them why there is so much red tape, why development charges are so high and ever increasing, and why they pass stupid laws to further lower supply and make it more expensive and/or harder to build (ie. Inclusionary zoning, height restrictions, etc.). All these people do is spend like drunken sailors, enact bad policy that hurt their constituents/the uninformed in the name of "helping them" and then give them back a few dollars here and there to make it look like they're actually helping them or addressing the problem that they themselves created.

People make it sound like investors want to see these ever increasing prices. Of course, investors want to see the value of their assets go up but it's not that simple. You have to remember that investors are buyers too and for those who would like to build a portfolio and are looking into accumulating assets for the long term, no one wants to see such a rapid increase in prices since it decreases their ability to buy more. Everyone is a "victim" of these rapid increase in prices and it's not healthy for the market or good for anyone, investors included. Of course, end users bear the brunt of it but to suggest that they are the only ones who are concerned about this rapid rise in real estate prices is over-simplifying the issue.

Well, I think it' s not such a bad idea but they have to be careful to not penalize the landlord investors who are providing housing to those who cannot afford to buy.

They should attach it to assignment sales at the time of the assignment was firmed up as they do the non-resident wiithholding. If the assignor is legitimately selling for some other reason they can file an immediate appeal or first apply for an exemption as with the non-resident exemption. But the province does have another way to actually drastically decrease pre-con speculators and that's by outlawing assignments of unfinished product with the usual few exceptions, Of course since there's no revenue to go that route this could simply end up being another excuse for a tax grab.

They can implement it for any other property purchased and resold within 2 years. Not only would assignments dwindle but pre-con speculators would also be forced to hold the property for 2 years to avoid the tax. The federal government can, if they wanted to, actually come out and state a 2 year holding is required, again with the usual exemptions, to avoid a sale being deemed an investment transaction. This gives the provinces the needed legal heft to enforce a speculation tax meanwhile the federal government would need do nothing else doomed to fail in legislature because they pretend they're trying to live up to the bogus election promises.

The tax can add as exemptions any investors who purchased a property to rehabilitate it with permits or to add a legal secondary unit and finished the job.

licenced wrote: ↑ Well, I think it' s not such a bad idea but they have to be careful to not penalize the landlord investors who are providing housing to those who cannot afford to buy.

They should attach it to assignment sales at the time of the assignment was firmed up as they do the non-resident wiithholding. If the assignor is legitimately selling for some other reason they can file an immediate appeal or first apply for an exemption as with the non-resident exemption. But the province does have another way to actually drastically decrease pre-con speculators and that's by outlawing assignments of unfinished product with the usual few exceptions, Of course since there's no revenue to go that route this could simly end up being another excuse for a tax grab.

The issue of assignment sales are overblown. Most people who assignment sale are not making money nowadays if you factor in all the fees and taxes at the full marginal rate. This isn't 10-15 years ago where prices were going up so astronomically that it makes it worth it, especially when you consider that your buyer pool in the assignment market is severely limited given the large upfront capital that's required to buy an assignment, causing you to sell below market price.

For the small subset of assignment sales that for some reason are really profitable, you can't really police the exemption rules, since people can just lie or skirt around it. I'm not sure how you can prove it. Again, just added government red tape which will ultimately cost the taxpayers money.

They can implement it for any other property purchased and resold within 2 years. Not only would assignments dwindle but pre-con specularors would also be forced to hold the property for 2 years to avoid the tax. The federal government can, if they wanted to, actually come out and state a 2 year holding is required, again with the usual exemptions, to avoid a sale being deemed an investment transaction. This gives the provinces the needed legal heft to enforce a speculation tax menawhile the federal government would need do nothing else doomed to fail in legislature because they pretend they're trying to live up to the bogus election promises.

The tax can add as exemptions any investors who purchased a property to rehabilitate it with permits or to add a legal secondary unit and finished the job.

What you mentioned is already caught under the existing tax act. If you're buying to flip then you're already taxed at the full marginal tax rate unless you lie about it. Adding a firm 2 year rule and say that it's a "speculation tax" is counterintuitive to existing tax code and again if you have exemptions I don't know how you enforce it.

All these municipal taxes are nothing more than tax grabs to compensate for the poor fiscal policy of municipal governments and to cover up their ineptitude when it comes to implementing stupid laws like Inclusionary Zoning etc. It panders to the uninformed and re-directs the anger at investors and developers who unlike municipal governments have no duty to act in the best interests of anyone else other than themselves. All these taxes do is add additional money to government coffers that they can squander and waste, just like the Toronto land transfer tax.

moofur wrote: ↑ People who advocate for a speculation tax really have no idea how the tax act works. If you're buying for flipping then it's already business income, which is taxed at your marginal rates. If the profit is high this means it's probably already taxed at the highest tax bracket for the majority of the profit (53.53% combined in Ontario). If the profits are low then it really isn't a problem to begin with since there probably aren't that many people doing it and implementing an additional tax won't be a deterrent. If the tax is being implemented because the concern is that people aren't reporting these as business income but capital gains instead, then what makes you think that people will report their gains for the purposes of the speculation tax then?

The tax is nothing more than pandering for political support to the uninformed.

Well that's not a bit naive though isn't it? All you have to do is refer to the GTA and Condo threads in here to note that people are making a profit of 40-50% with a 3 month flip and in so doing have driven up prices for the end user by that much and more. If someone say purchases a Toronto property for a million at 20% down and sells it 3 months later for $1,300,000 after tax they have made approximately 43% return on their investment. There are a lotof people who are doing exactly that - they saw the market's trajectory and made it worse with this tactic.

No it is not already in the tax act, hence the move to implement this tax.

And no, there is no counterintuitive anything about it. The CRA at prsent has an unwritten rule about selling within a year yet they have stated exemptions.

Not sure where you're getting your information from.

moofur wrote: ↑ The issue of assignment sales are overblown. Most people who assignment sale are not making money nowadays if you factor in all the fees and taxes at the full marginal rate. This isn't 10-15 years ago where prices were going up so astronomically that it makes it worth it, especially when you consider that your buyer pool in the assignment market is severely limited given the large upfront capital that's required to buy an assignment, causing you to sell below market price.

For the small subset of assignment sales that for some reason are really profitable, you can't really police the exemption rules, since people can just lie or skirt around it. I'm not sure how you can prove it. Again, just added government red tape which will ultimately cost the taxpayers money.



What you mentioned is already caught under the existing tax act. If you're buying to flip then you're already taxed at the full marginal tax rate unless you lie about it. Adding a firm 2 year rule and say that it's a "speculation tax" is counterintuitive to existing tax code and again if you have exemptions I don't know how you enforce it.

All these municipal taxes are nothing more than tax grabs to compensate for the poor fiscal policy of municipal governments and to cover up their ineptitude when it comes to implementing stupid laws like Inclusionary Zoning etc. It panders to the uninformed and re-directs the anger at investors and developers who unlike municipal governments have no duty to act in the best interests of anyone else other than themselves. All these taxes do is add additional money to government coffers that they can squander and waste, just like the Toronto land transfer tax.

licenced wrote: ↑ Well that's not a bit naive though isn't it? All you have to do is refer to the GTA and Condo threads in here to note that people are making a profit of 40-50% with a 3 month flip and in so doing have driven up prices for the end user by that much and more. If someone say purchases a Toronto property for a million at 20% down and sells it 3 months later for $1,300,000 after tax they have made approximately 43% return on their investment. There are a lotof people who are doing exactly that - they saw the market's trajectory and made it worse with this tactic.

Not really naive. Again, it's already in the tax act. The act is written in such a way that if people are flipping, then it should be taxed at the full marginal rate, nothing naive about it.

licenced wrote: ↑ No it is not already in the tax act, hence the move to implement this tax.

And no, there is no counterintuitive anything about it. The CRA at prsent has an unwritten rule about selling within a year yet they have stated exemptions.

Not sure where you're getting your information from.

Yes it's already in the ITA because the ITA is written in a way where if you're short term flipping then it should be taxed as business income at your full marginal tax rate. There isn't an "unwritten" rule since whether it's business income or not comes down to the underlying facts and circumstances and whether it's a business "adventure in the nature of trade". The CRA has broad powers to assess you at whatever they deem is appropriate and take money from you including garnishing your wages and taking money from your bank account if they so desire, so legislation and the power to act upon it is already there.

Again, this is just municipal governments pandering to the ill-informed and capitalizing on more taxes for them to squander in the name of "helping". All it does is displace blame on everyone other than themselves for ever increasing development charges and poor policy like IZ which is really what is driving up prices because of lowered supply since it disincentivizes and slows the new building of new homes.