Quote:
Originally Posted by Hakkaboy
Capital gains is a reduced tax rate on gains. The keyword is gains. If the gain is only $1, you pay 25 cents. If the gain is 0, then you pay 0. If you sell your house for less than what you bought it for, then that should be written off against your other investment income (if any).
Now, what are the 3 key reasons that people sell their principle homes?
a) Upsize
b) Downsize (including being forced due to financial reasons)
c) Move somewhere else
In what world will someone hold out and not sell due to a capital gains tax that will work out to a similar normal income tax rate if they are in the a, b, or c group?
And now, the last point, regarding the gap in upsizing. Yes, capital gains will erode and give you less buying power for your next home. But guess what, since this will apply to EVERYBODY, then there will be less stupid money to buy the next house. You are all assuming that prices will stay the same or keep rising, but fail to realize that this measure should bring prices down for everybody, including those who will be buying their first homes. It's basic economics, as you said. Less money available to be spent, housing prices go down.
This reminds me of the argument for higher minimum wages. "This city is to expensive to live in, let's raise minimum wage by 40%." Well, if you raise minimum wage, then everything goes up since labour will go up and so will operating costs for almost all businesses. Then it just makes everything more expensive again will now affect everyone and you are in a endless cycle of inflation and fixes to it causing more inflation.
To me the solution to the "affordability crisis" isn't by giving everybody more money. It's the opposite.
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Capital gain taxes are applied on investments, primary homes are NOT supposed to be investments, they only started to become like investments because such b/c of a lack of supply but that doesn't mean we should penalize people for it. Homes are supposed to be HOMES. If the price of water increases due to scarcity and we see people speculating on water we wouldn't apply a cap gain tax to it, we'd find ways to get more water or we'd find ways for people to use less water. Housing is one of the very few essential things where it seems we're willing to suspend the basics of supply and demand to explain the price of it.
The cap gain taxes punishes heavily when it comes to social mobility whether or not housing prices go up quickly or slowly (and housing prices can and do go up slowly, they generally do not go down). Example:
I'm Joe Blow who lives in Squamish in my condo which I bought in 2012 for $500k which is now worth $600k (hypothetical low increase of just 20% over 10 years). I've met the love of my life but she lives in Abbotsford. Also I found my dream job (same pay though) out there too so I'm gonna move over there as I can't commute this far every day and she's not moving. Turns out housing costs exactly the same and an equivalent condo costs $600k in Abbotsford.
So now I'm on the hook for:
Property Transfer Tax: $10K (a tax that was made up to try to slow real estate price increases)
Real estate commission: $20K
Capital gains: ~$15-30k depending on income.
WTF mate? I'm out 10% of the value of my home just to move to be with the woman I love and work my dream job? It's fortunate that he's met the love of his life so he's willing to lose a bunch of money over this but if it was just for a job there's a good chance Joe Blow passes on the job b/c he can't afford to lose this money over a house.
That's just the lowest end scenario - a below inflation rate increase in the value of his home. Use a slightly higher rate of increase like 5% YoY and this guy is losing his hat over a move.
Blowing a hole in social mobility is just not an acceptable outcome here. We punish the wrong kind of people - the rich can eat that cost just fine, the working/middle class will take it in the teeth.