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March 21, 2021 | The Gift

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.

A row house on a leafy street an hour (by car) west of the urban core sold last week with a flurry of offers and for hundreds more than asking. Yawn. Old news. This crazed behaviour is everywhere.

But it’s still interesting a decidedly middle-class home with no new renos increased 50% in 24 months, from the fives to the eights. Of course, this pales to recent flips in smoky hoods like Brampton, where flippers have been feasting on 6% monthly appreciation.

Now that mortgage rates have been gently rising and the vaccine’s started to flow, the market may mollify. But not soon. It’s spring. Time to grow antlers, sow oats and make offers. March stats could be epic. April will be orgasmic. And then you should expect significant change.

Next month also brings tax reality. Last year the feds pushed the tax-filing deadline way into the autumn to accommodate pandemic mayhem. The American IRS has done it again, giving people there until the end of May to get their stuff together. But in Canada your 2020 return has to be finished and submitted in six weeks.

Last year Ottawa sent $82 billion in CERB cheques to nine million people – that’s 61% of all the 14.8 million folks in the workforce. Of those, 650,000 were self-employed who filed incorrectly and were not eligible for benefits, but the Trudeau Liberals have forgiven them. Also not paying back money will be the 300,000 teenagers who collected $636,000,000 in CERB, while living at home, having no expenses. And let’s not forget the 114,000 people who earned well over $100,000 and also took the pogey.

Well, here’s the point. The federal government is spending $400 billion more than it’s taking in. Provinces are also a mess. Like Ontario’s $40-billion hole (the next budget comes on Wednesday). Toronto has a $2 billion shortfall, despite Covid cash coming from the feds. Every major city has, like provinces and the nation, seen revenues plunge and costs rise.

Meanwhile, what’s been happening with citizens?

Yup, all good. At least for the millions of WFH warriors who have kept jobs and incomes, seen living costs plunge, pocketed extra money in enhanced government benefits, and plumped their savings accounts by a collective $100 billion. Ah yes, and those with real estate have seen their net worth bloat since the pandemic started – as this pathetic and breathless blog has chronicled. Cheap money, aggressive nesting, WFH, urban flight and sheer FOMO have shoved personal net worth higher at the same time public finances have cratered.

It won’t last. It can’t. You know it.

This is why Vancouver has an ownership tax on non-residents plus a vacancy charge, and why Toronto’s about to do the same as well as mulling a land transfer tax jump for lux homes (over $2.5 million). Everywhere, property taxes will increase and the debate is being kicked up again about taxing homeowners on their unearned, windfall, capricious and often-obscene capital gains.

Will any such move happen in the maiden Chrystia budget, expected next month? Nope. Not a chance. T2 is eying a majority win now that O’Toole was hoisted upon the socon petard a few days ago. Nibbling away at homeowner equity gains will not be happening until later.

If the Libs increase the inclusion rate for capital gains on stocks, funds, rental properties and other assets in the federal plan (possible in April) it will only make more people ask a simple question: why not tax where the big profits lie? These days two-thirds of all capital gains sit in residential real estate. Not taxing them is a $7 billion gift to property owners, while the average family is shut out of owning the average home.

The US taxes gains on houses, albeit with an exception that spares most people. Around the globe some cities (New York, Paris) also tax them. Canadians selling properties in places like Florida are hit with a 15% withholding tax on gains. And everywhere Covid has pushed housing to an historic level, increasing real estate lust and speculation, taking valuations to absurd levels in the midst of a public health emergency that’s killed millions and pushed governments into debilitating deficits.

If there was ever a catalyst for ending this nonsensical exemption for residential profits, here she be. There are not enough rich people to whack with more tax to finance government largesse. It’s therefore inevitable the house tax will come. You may wish to factor that into your retirement strategy.

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March 21st, 2021

Posted In: The Greater Fool

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