Are Taxes Worsening Canada’s Housing Affordability?

In recent years, all three levels of government have attempted to use the tax code and other public policy instruments to help address Canada’s housing affordability challenges. However, while Canadian officials are trying to encourage home-buying and incentivize more supply, industry experts argue that plenty of measures are still in place that stifle supply and will not resolve affordability issues nationwide.

As a result of high levels of taxation in various jurisdictions, households are mobilizing and shifting to more affordable housing markets. For example, based on Statistics Canada data, net interprovincial migration was up in Alberta and Atlantic Canada but down in British Columbia and Ontario.

“Given today’s housing market realities, it comes as no surprise that buyers are willing to travel across the country to achieve home ownership,” said Christopher Alexander, the president of RE/MAX Canada, in a report. “In addition to affordable housing values and extensive job opportunities, Alberta is well known for its position on taxation, with no provincial sales tax and zero land transfer tax on residential real estate.”

So, what are some of the tax policies that could be exacerbating these housing issues?

Let’s take a look at some of the programs currently intact:

Duplication

Housing leaders have asserted that one of the many setbacks in the Canadian real estate market is the number of duplicate taxes and regulations. For instance, there is the so-called flipping tax, a federal levy on investors who transform residential properties. The gains are added to the Income Tax Act. The problem? British Columbia recently copied the federal law, except the province expanded the timing application to two years, up from a single year at the federal level.

Experts argue that these duplicative efforts can complicate the situation, requiring more Canadians to leap over the various hurdles.

Property Tax

Across the country, municipalities are raising their property tax rates as inflationary pressures and rising interest rates impact their budgets. In 2024, several major urban centres will have increased their property tax rates to levels unseen in years.

Here is a brief breakdown:

• Halifax, Nova Scotia: +10 per cent
• Montreal, Quebec: +5 per cent
• Toronto, Ontario: +9.5 per cent
• Ottawa, Ontario: +2.5 per cent
• Vancouver, British Columbia: +7.5 per cent

Some homeowners say the significant hike will affect their living standards.

Kirby Burditt, someone who lives in a modest home in Saint John’s, New Brunswick, told CBC News that he will be paying as much as $900 more over the next four years.

“It will make a difference,” he said. “I don’t drink, I don’t smoke, I don’t gamble. I haven’t been away for one night in 14 years. I just don’t have the money. Even when you’re trying to live sensibly, it just costs a fortune.”

Foreigners and Empty Homes

The federal government recently targeted foreign home ownership to show the public that it was doing something. As of Jan. 1, 2023, legislation prohibited non-Canadians from buying Canadian real estate. While it was poised to expire on Jan. 1, 2025, Ottawa confirmed that it would extend the ban to Dec. 31, 2026.

Additionally, another bill focuses on foreign homeownership: The Underused Housing Tax Act. It slaps a one per cent annual tax on residential real estate owned by non-Canadians that is not occupied during a year. Several cities, including Toronto and a dozen or so British Columbian municipalities, have implemented similar measures, but the data show that these have yielded little success.

“Again, if foreigners are the significant culprit to Canada’s housing problems, it’s news to me,” wrote Kim Moody, the founder of Moodys Tax/Moody’s Private Client and former chair of the Canadian Tax Foundation, in the Financial Post.

Carbon Tax

The highly contentious carbon tax is poised to raise household costs. According to a recent report from the Parliamentary Budget Office (PBO), the federal carbon tax will cost the average Canadian household as much as $911 in 2024-2025. The good news is that some homeowners will enjoy some tax relief this year because home heating oil will be exempted from the carbon tax, resulting in savings of as much as $704. However, the bad news is that the carbon tax exemptions will not be applied to other forms of home heating, like natural gas.

The GST

Could more rental supply come to market? This is the objective behind eliminating the GST on new purpose-built rentals. The tax policy, which raises the GST rental rebate from 36 per cent to 100 per cent, is designed to influence the construction of rental housing. Despite being a reversal from 2017, Prime Minister Justin Trudeau says the newest policy is necessary.

“It was the right program at the time,” Trudeau said. “But now, given interest rates where they are, given the challenges that people have in building new apartment buildings, we realize it’s the right time to step up with removing federal GST on purpose-built apartment buildings.”

Taxes in Canada

It is estimated that the typical Canadian family pays more than 45 per cent of its income on taxes. With housing costs ballooning, from home prices to energy bills, finding tax relief of any kind has turned into a necessity of life for households. While conditions have stabilized in the Canadian real estate market, the polling data suggest that more needs to be done. And the best target could be taxation, whether to facilitate home purchases or housing construction activity.