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NO PLANS FOR A NEW FEDERAL HOME EQUITY TAX Housing equity tax is really an “imputed rent tax” BY SAMANTHA GALE
C
anada Mortgage Housing Corporation (CMHC) has come under fire recently for reports that it is researching how to deploy a new federal home equity tax. However, a CMHC media spokesperson has now confirmed with Yahoo Finance Canada that such reports are inaccurate and that neither it nor the federal government have any agenda to implement such a tax. CMHC further explains that research funds have been provided to Generation Squeeze through its Solutions Lab to explore solutions to housing, wealth and inequality, and, more specifically, to improve housing affordability in Canada. A CMHC spokesperson advises: “While the project includes a research component, it is primarily focused on confirming the issues. Once the issues have been further analyzed, the most promising solutions will be further developed with stakeholders, prototyped, tested and prioritized for possible implementation and scaling.” Eric Swanson, executive director of Generation Squeeze, writes, “Rising home prices are creating a growing divide between those who own housing and those who don’t. This project will bring a broad cross-section of people into dialogue about solutions that might bridge that divide, in ways that support all Canadians.” A report on the Solutions Lab findings is anticipated sometime during early 2021. Most observers have concluded that a federal home equity tax is a capital gains tax. However, Dr. Jack Mintz, President’s Fellow of the School of Public Policy at the University of Calgary, has explained that a home
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equity tax is not the same as a capital gains tax – it is a broader tax on imputed rents. Taxes on imputed rents are not popular but do exist in some European countries, such as Switzerland, Holland, Belgium, Iceland, Spain and Luxemburg. Imputed rent is an estimate of the rent that an owner-occupied property would earn if it were tenanted and generating rental income. The theory behind imputed rents can be understood like this: if two independent people own property of equal rental value, and each lets the other person live in their house without collecting any additional monies (e.g. a housing swap), so that the mutual rental transactions generate no tangible rental income, the government is deprived of the opportunity to tax rental income. In theory, imputed rents on property are considered to add to a person’s disposable income as they do not pay rent.
In academic circles, the failure to tax imputed rent is referred to as homeownership bias. Removing homeownership bias by taxing imputed rent would undoubtedly create chaos in the housing market, by upsetting the equilibrium of current housing taxes, which include municipal property taxes, property purchase taxes and a host of other hidden real estate related taxes. In addition, cash-poor, asset-rich sectors of the community, such as senior citizens who have owned their home for many years, would be unfairly and disproportionately impacted by imputed housing taxes. Let us hope that the anticipated Solutions Lab report identifies a plethora of housing affordability solutions that add to the capacity of all Canadians to own a home and stays away from taxation options that tend to undermine affordability. CMB MAGAZINE
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