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November 14, 2019 | Naked

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

The creep continues.

It started with the mandatory reporting of any real estate transaction on your annual tax return – whether you made bank on it or not. Then it spread to the CRA as revenuers tracked down condo flippers, renospeckers and amateur landlords. Then they came for the basement suiters who collect cash rent. Then followed the foreign buyer taxes in BC and Ontario, and the empty-house tax, the special property taxes on high-end houses plus that crazy spec tax on second homes. Now the Trudeau gang is crafting one on non-residents who own here. And Ottawa’s started to disallow tax-free capital gains on properties people altered for rental units, while forcing developers to hand over the list of precon condo buyers.

Notice a pattern? You should.

Without a doubt the next big revenue source for desperate governments will be (and is already becoming) residential real estate.

In the election campaign the NDP (now in a powerful Parliamentary position) advocated for a wealth tax, embracing the value of real estate holdings. The Greens campaigned on a financial transactions tax which would hit the cost of mortgages, HELOCs, purchases and sales as well as home insurance. The Libs tried to deny it, but the powerful Ontario caucus endorsed a policy which would start taxing residential real estate profits on a sliding scale, based on length of ownership.

Also during the election Trudeau vowed a 1% annual tax on the value of housing owned by non-residents. This represents the first time in Canadian history the senior level of government has moved into the area residential real estate to raise revenue. Now all three major levels of government – local, provincial and federal – are gunning for money from the hides of owners.

Given what’s going down in Ottawa, this is a pale beginning.

The federal Libs said during the campaign they’ll run deficits of $28 billion now, falling to maybe $21 billion in four years. As we know, everyone lies to get elected. The budgetary shortfall will be far larger, especially if the economy takes a cyclical downturn after the 2020 US presidential election. Revenues will fall. Expenses and spending will rise. The river of red will become a torrent. Tax increases are a certainty.

But, since the tax base has narrowed so dramatically (four in ten families pay no net income tax now, and that’s about to become more extreme), the wealthy are already being hosed for up to 54% of earnings and taxes on investment or business income can’t swell much lest we lose capital to the States, guess what’s left? Right. Houses.

The argument for taxing residential real estate gains is simple. Everything else is subject to Hoovering. Why not this? Realistically, the very fact profits on principal residences are tax-free has played a huge role in creating a bubble and rendering property unaffordable to the average schmuck. It’s encouraged a massive flow of wealth out of financial vehicles and retirement savings and into houses. Especially when the government itself will provide the insurance enabling gross leverage to take place. This has resulted in a 70% home ownership rate at the same time half of families routinely report they’re close to broke at the end of each month. What else would you expect with $1.6 trillion in mortgages, increasing at $60 billion a year?

Now, this pathetic, heartless, realtor-baiting blog is not advocating your real estate gains should be sucked away by a voracious government. It’s just telling you it’ll happen. It’s inevitable, at least in part and starting before long. The likely starting point will be secondary properties, including cabins, condos, cottages, hobby farms or holiday homes in other cities. Van’s so-called ‘empty houses’ tax and BC’s spec tax will be the models. Market value property tax assessments in most major cities make a form of real estate wealth tax – on top of property tax – too tempting to pass up.

Besides, the Mills want it. They see homeowners as rich, the recipients of unearned wealth because their elders won the birth lottery. There’s no sympathy among the young for retained equity and, sadly, they now form the largest voting bloc.

If you think the political encroachment on your real estate is unjustified, intrusive and unconstitutional, too bad. In Canada there’s no enshrined right to own property. It’s not in the constitution, the bill of rights nor statues protecting civil liberties. Any level of government can tax your house, the value it represents, or take it with or without compensation.

Twenty-seven years ago I tried to change that – the last time federal politicians had the stones to diddle with the constitution of Canada. The right to own property, and therefore to mount a legal challenge when that right was abrogated, was included in a set of amendments after I lobbied furiously for it to happen. The lefties hated me for it, of course, since enshrining property rights into law makes it way harder for governments to take wealth and redistribute it.

Alas, it went down in flames as part of the Charlottetown Accord (ask you grandfather about it). And here we are. Naked owners. So get ready.

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November 14th, 2019

Posted In: The Greater Fool

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