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by manbackharry 1530 days ago
Your last line is pretty much my exact opinion. I'm an idiot, but I struggle to see how significant taxes (and I mean SIGNIFICANT - something like having all rental income and cap gains on secondary residences taxed at the highest rate ~54%) in these cases wouldn't have extremely broad appeal. Make the sector unappealing as an investment class and you should stop seeing unfettered speculation. The idea of housing being an investment in general is warped.

The principal residence tax exemption is also a joke but I also understand it's political suicide to try and get rid of it and at this point, since so many people have their life savings tied up in real estate, you'd probably be causing more problems by removing it.
2 comments
imtringued 1530 days ago
Rent control doesn't work because of liquidity preference. Rental income must exceed the liquidity premium of land or else it will be kept empty. Liquidity preference is effectively the concept that people prefer keeping assets exchangeable for other assets.

For real estate this means keeping the property ready to sell at any time. It is easier to exchange an empty apartment and even easier to exchange an empty plot than a rented out apartment.

The downsides of renting out, i.e. the inability of being able to quickly sell the property must be compensated and that compensation is part of your rent. If you cap rent, that compensation will be insufficient to "bait" the property owner into renting his property out. They would rather keep it liquid and wait for a better offer. To keep it simple, the owner has options, the renter doesn't, so the renter must go out of his way to attract the owner's attention by paying higher rent than if he had outright owned the property himself.

Eliminating the liquidity preference of land would require all land to be leased or a sufficiently high tax on owned land (so that waiting and doing nothing has opportunity costs).

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manbackharry 1529 days ago
> ...or a sufficiently high tax on owned land (so that waiting and doing nothing has opportunity costs).

For non-primary residences? Sounds pretty good to me!

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Ensorceled 1530 days ago
> I'm an idiot, but I struggle to see how significant taxes in these cases wouldn't have extremely broad appeal.

It would have broad appeal, but not to the developers etc. that are buying 10K plates at fundraising dinners ...

> The principal residence tax exemption is also a joke

The problem is that without that exemption, you literally can't afford to move. The 6% "tax" for real estate fees are already painful if you are trying to move to a house of the same value in another city, but if 40-50% of your sale value was considered a capital gain ...

The real problem is people "moving into" rentals for 6 months and then declaring that their principle residence and selling the property. Once you start renting it should be forever be a business property.

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manbackharry 1530 days ago
> It would have broad appeal, but not to the developers etc. that are buying 10K plates at fundraising dinners ...

Definitely true and thought it would go without saying haha

The rest of your post is totally fair and I can't really disagree.

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earleybird 1529 days ago
The CRA is fairly particular[0] about income from the sale of a property. They want to know, for example, how long it has been your primary residence and if it was rented before then, what was the appraised value. You will end up paying capital gains on the delta. So, if you've been renting out a property, move in to it for 6 months and then sell you'll be paying capital gains on everything but the last 6 months. The only time that works out is with a sudden spike in values.

[0] source: an accountant I know that wants to stay in good standing with the CRA :-)

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Ensorceled 1529 days ago
The point is that you have changed your principle residence to the new property and, hence, it is not taxed on sale.

"When you change your principal residence to an income producing property, such as a rental or business property, you can make an election not to be considered as having started to use your principal residence as a rental or business property. This means you do not have to report any capital gain when you change its use. "

https://www.canada.ca/en/revenue-agency/services/tax/individ...

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earleybird 1529 days ago
The scenario allowed in your reference is not the same. The original scenario was a rental/income property declare principle (for some short period of time) for the purpose of shielding capital gains whereas the exemption you reference is a principle residence allowed to be used for rental/income. Note that you cannot declare another property as principle while you're renting out your homebase. I expect it is meant for cases where you might take a job transfer for a period of time.

The taxman never leaves money on the table.

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