Last week, while reading an old case from the mid-1800s, I could not help but feel awestruck at the facts of a case; a man sued another for snubbing him on the purchase of a large property for $1,800. I was so stuck on the cost of this property it was almost impossible for me to focus on anything else. Times, unfortunately, have changed. The affordability crisis has left many policy makers and Canadians feeling a bit desperate. There are undoubtedly many factors that go into the prices Canadians are struggling to afford. Aside from legal loopholes, unconstrained inflation, and unregulated investments, what can be contributing to this problem?Today, we are going to zero in on taxes. Let’s start with property taxes. According to the Government of Ontario’s website, property taxes will charge you based on the value of your home. There are two parts to the property tax equation: municipal and education. The municipal portion is set by the municipality you live in. The education portion set by the Minister of Finance and the proceeds fund Ontario elementary and secondary schools. Ontario’s website states that “property taxes are calculated using the Current Value Assessment of a property, as determined by the Municipal Property Assessment Corporation (MPAC), and multiplying it by the combined municipal and education tax rates for the applicable class of property.” So, how much you pay in property taxes depends on the value of your house and depends on the rate set by your municipality. The mill rate determines the tax due for every dollar of a property's assessed value. While theoretically tied to the services residents receive, recent increases in 2023 appear to be disconnecting from the perceived value. In Vancouver, taxes surged by over 10%, while Toronto saw an increase of over 5%, alongside a 1.5% special transit/housing levy. The question arises: Are Vancouver residents truly receiving 10% more in services or value? We could not find a single homeowner who supported this perspective.Another tax Ontarians need to look out for is the land transfer tax. As the name suggests, the land transfer tax is taken up when the ownership of a house moves from one person to another. During a land transfer, it is the buyer who must assume this additional cost. This tax, just like property tax, also depends on the value of the house but this time it considers the value at purchase, rather than a value at a given point of time defined by the municipality for property taxes. The provincial government collects this tax, but the amount you pay also can depend on your municipality or where in a given province you live. This tax is used to fund various public services such as healthcare, education, and more. While important causes, and the tax is a very successful revenue tool, it is tenuous to suggest a direct value-added link.True North reports that the taxes applied to condo builders in Ontario can add as much as 30% to the final price. Development charges, parkland levies, community benefit charges, HST and others are all passed on to the end consumer. As a builder will typically earn about 8 to 10% profit, which is then also taxed, it is clear that the governments’ take is substantially more. On a $1 million Toronto condo, all three levels of government take in more than $250,000 in tax, without accounting for indirect charges such as the carbon tax.Home buyers may also be responsible for HST. According to Kalfa Law, there are four situations where HST applies: when you buy a residential property that is newly built or has been renovated, when part of your residential land has non-residential vacant land, commercial properties, and the services associated with the purchase of a house. HST on a property is 13%, like always.If you are selling your house, you may be subject to Capital Gains Tax if it has not been designated as your principal residence. If it is an investment property. The amount due is also dependent on your income. H&amp;R Block tells us that capital gains are 50% taxable and TD states that you will be taxed at your marginal tax rate. This tax only applies if you made a profit from the sale of the house.There are other taxes that the majority of Canadians likely won’t have to worry about. One of these is the Non-Resident Speculation Tax, a 15% tax that affects non-Canadian residents. Another one is the Vacant Home Tax. This was implemented to help Torontonians afford their own homes by trying to free up existing supply to either buyers or renters. The Vacant Home Tax taxes 1% of the property’s current value assessment if your occupancy is accurately reported as vacant for 6 months of the year. In Vancouver the Entry Home Tax is 3%.As you can see, there are numerous additional costs involved in the sale of a home. When buyers are already struggling to purchase or maintain homes in the current market, the combined burden of required payments and taxes has a significant impact. We have long believed that the most significant opportunity for governments to address housing affordability is by reducing taxes, including all the taxes mentioned earlier, along with income taxes. This approach would empower consumers with greater buying power and foster conditions for a robust economy that generates well-paying jobs.

Houses and Taxes

Uncover the financial landscape of real estate taxes and their impact on housing affordability in Canada

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