COVID and the housing market

[crankcall]

The problem with capital gains on a principal residence, Mommy offshore buys junior a house in "pick a city" for student housing, he goes to school for 4-5yrs , they put the house in juniors name because they can, he finishes school and they sell the house for 2-300k extra and junior gets a nice start in life. Possibly not fair, but its legal

Middle age Fred that has lived here forever and thought his house was an RRSP gets screwed if a tax comes in.

Friend here has sold his Oakville house, pocketed the gains , is moving into his cottage tills covid clears , declare that principal residence , pocket the gains when he sells next yr and he starts construction on a new cottage on a lot he owns and it will be his 'principal residence'

Money always makes money

 

[crankcall]

differentiate between employment or passive income, consumption tax and a huge luxury tax. If you want a fancy watch or car, that is purely a luxury good that is never required. Doubling the price with tax makes it more exclusive which is why you bought it anyway. Want to avoid paying crazy taxes, spend your money in a way that keeps it circulating.

So what about the people that have a safety deposit box full of watches that they purchased as an investment? Investing in watches is actually a thing ( and more fun than a tech IPO) . Is it a luxury or an investment.
Disclaimer; I may own a few watches LOL

So you bought a used porche 911 turbo widebody , paid 35k 15 yrs ago and sat it in the garage for that time, and now they are about 100k. Should you be taxed when you sell it ( probably) , the guy that buys it gets taxed.

really slippery slope.

 

[AllistonGT]

My principal residence was not purchased as an investment. I bought to live in. Shelter. Should never be taxed. If it was, is to be in future, then it should be treated as an investment. Interest deductible, upkeep deductible, property taxes deductible etc.


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[nobbie48]

The problem with capital gains on a principal residence, Mommy offshore buys junior a house in "pick a city" for student housing, he goes to school for 4-5yrs , they put the house in juniors name because they can, he finishes school and they sell the house for 2-300k extra and junior gets a nice start in life. Possibly not fair, but its legal

Middle age Fred that has lived here forever and thought his house was an RRSP gets screwed if a tax comes in.

Friend here has sold his Oakville house, pocketed the gains , is moving into his cottage tills covid clears , declare that principal residence , pocket the gains when he sells next yr and he starts construction on a new cottage on a lot he owns and it will be his 'principal residence'

Money always makes money

Some loopholes need to be closed and if the runaway market is cooled Offshore Junior won't get his uni fees back from the house.

Re Fred:
Using the 2% a year squeeze formula for Fred let's say as of Jan 1 2022, the inception date for the plan, his house is worth $1,000,000 and he is 50 years old. Fast forward 15 years and he is 65 YO.

Let's say the house is then worth $2,000,000 and the taxable gain is $1,000,000 X 15 X 2% = $300,000.

His original investment, $1,000,000 is untouched as is $700,000 of the gain. The $300,000 becomes part of his income and is taxed at the going sliding scale rate. If he has a modest pension income say $50,000 his total taxable income is $350,000 and I'd guess his taxes would be just under half of that, $175,000. He still keeps $1,825,000. He can spend $60,000 a year for 30 years out of that without running out or even investing it.

Your friend with the cottage may find that the value is logged when he declares it principle residence. The gain up to that time may get calculated into his taxes when he sells.

 

[nobbie48]

My principal residence was not purchased as an investment. I bought to live in. Shelter. Should never be taxed. If it was, is to be in future, then it should be treated as an investment. Interest deductible, upkeep deductible, property taxes deductible etc.


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The problem is that too many people are buying houses as investments and making it hard for the people that "Just want a house" to get into one.

You can claim all the house expenses right now. Don't buy a house but rather start a real estate investment company, the company buys the house and rents it to you, all costs included in the rent.

If the rent isn't market value you pay a taxable benefit on the difference. Katching for the tax man.

If a move becomes a necessity the company sells the house and buys you a new one. The capital gains on the sale reduces the amount the company has to buy the new place. It isn't like trading in a car.

This whole mess is a result of the government being asleep at the switch and letting it get this far out of line. It may be incurable.

Option 1) Do nothing and the market goes from crazy to criminally insane. Only one percenters can own a house.

Option 2) Implement tax changes and the investors bail out of Canada with the glut of investment properties up for sale, crashing prices are deafening.

Mom and pop with their paid for house are OK. They were millionaires for a while and can chuckle about it.

The investors leave town tarred and feathered.

Jim and Suzy can now afford a house on a working wage.

Bill and Mary own a $500,000 house with a $900,000 mortgage

Canada's biggest Ponzi scheme collapses.

 

[GreyGhost]

My principal residence was not purchased as an investment. I bought to live in. Shelter. Should never be taxed. If it was, is to be in future, then it should be treated as an investment. Interest deductible, upkeep deductible, property taxes deductible etc.


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That is solvable either through a phased in approach or a trigger date where a principal residence owned on that date uses the old rules but any subsequent change of ownership triggers the new rules.

I had a similar discussion with Rosedale residents 15 years ago. They argued that "Mike" bought his house for 20K 50 years ago and now pays 5K in tax on his 3M house. If property tax were ratcheted up to a reasonable level (at the time, surrounding municipalities were ~10K/1M), Mike would be forced out of his house therefore property tax should never go up. Ok, so I brought up tax increase to market rate on change of ownership and they lost their minds that would devalue mike's house. Oh cry me a river. He bought it for 20K and now gets 2.5M instead of 3M tax-free. Investment returns are never guaranteed. People have lost sight of that and a lot like the dot com boom are looking at the pot of gold and dreaming of how to spend it. It's not guaranteed.

 

[AllistonGT]

You can claim all the house expenses right now. Don't buy a house but rather start a real estate investment company, the company buys the house and rents it to you, all costs included in the rent.

If the rent isn't market value you pay a taxable benefit on the difference. Katching for the tax man.

If a move becomes a necessity the company sells the house and buys you a new one. The capital gains on the sale reduces the amount the company has to buy the new

.

Ah no.
I have a holding company. I’ve discussed this with my accountant. Maybe years past but not now. If I hold a property in a hold co and even use it for a month a year myself, CRA will consider personal ownership. It also has to show rent coming in and expenses being paid out. Cash flow.


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[Scuba Steve]

Ah no.
I have a holding company. I’ve discussed this with my accountant. Maybe years past but not now. If I hold a property in a hold co and even use it for a month a year myself, CRA will consider personal ownership. It also has to show rent coming in and expenses being paid out. Cash flow.


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My accountant said no as well.

Sent from my Chesterfield using my thumbs

 

[crankcall]

Nope, that plan no worky .

 

[nobbie48]

Nope, that plan no worky .

While I haven't researched it in any depth I can't see why you can't do it. I just think it wouldn't work out well financially, particularly losing the present no-tax cap gain benefit.

You have to pay market value rent.

Part 2 is that it is so sketchy that red lights would shine on it at CRA headquarters. Enjoy the audit.

My accountant has stories about small businesses doing stuff cash and buying expensive cars for the whole family with the cash. Then they put the insurance on the business tab. CRA investigates why a business with two contractor vans has a $30,000 vehicle insurance premium.

 

[mimico_polak]

The only way I would agree to a capital gains tax (and my opinion doesn't matter) was if the capital gains was calculated on any property that you own...as long as you own it less than 5 years. I still believe that the main issue is that housing in Canada has become an investment vehicle. As such, you've got flippers that buy, reno, live a year and a day, claim principal residence, and sell for 100% tax free gain. Once again, I have nothing against flippers / renovators that do this by the book, and claim the gains as income on their books. My issue is with those that gain the system.

Sell a house within X of ownership:
1 year - max % allowable
2 year - 40% tax
3 year - 30% tax
4 year - 20% tax
5 year - 10% tax
5+ - 0% tax

This removes a lot of incentive for quick flips as the flippers work on a volume model. Fast flips are easy money. If they have to carry the mortgage / insurance / property tax / expenses for an additional X years...that incentive disappears proportional to the time held. Majority of people do not have a need to flip a house within 5 years. Sure there are extenuating circumstances...but I'd say those are fairly rare.

These guys tried it, and got caught, but the CRA isn't savvy enough to collect 100% of the gains...

Quick home flipping piques the interest of the CRA

A recent Tax Court of Canada case illustrates how repeated home sales will lead to the profits being taxed as profits, writes Bob Aaron

www.thestar.com

I'm fully against taxing the capital gain of someone like @nobbie48 that has lived and built up equity over X years.

 

[nobbie48]

The only way I would agree to a capital gains tax (and my opinion doesn't matter) was if the capital gains was calculated on any property that you own...as long as you own it less than 5 years. I still believe that the main issue is that housing in Canada has become an investment vehicle. As such, you've got flippers that buy, reno, live a year and a day, claim principal residence, and sell for 100% tax free gain. Once again, I have nothing against flippers / renovators that do this by the book, and claim the gains as income on their books. My issue is with those that gain the system.

Sell a house within X of ownership:
1 year - max % allowable
2 year - 40% tax
3 year - 30% tax
4 year - 20% tax
5 year - 10% tax
5+ - 0% tax

This removes a lot of incentive for quick flips as the flippers work on a volume model. Fast flips are easy money. If they have to carry the mortgage / insurance / property tax / expenses for an additional X years...that incentive disappears proportional to the time held. Majority of people do not have a need to flip a house within 5 years. Sure there are extenuating circumstances...but I'd say those are fairly rare.

These guys tried it, and got caught, but the CRA isn't savvy enough to collect 100% of the gains...

Quick home flipping piques the interest of the CRA

A recent Tax Court of Canada case illustrates how repeated home sales will lead to the profits being taxed as profits, writes Bob Aaron

www.thestar.com

I'm fully against taxing the capital gain of someone like @nobbie48 that has lived and built up equity over X years.

It's not just flippers. It can be drug money and proceeds of crime.

Crime is cash and converting it to legitimate spending money needed for registered items, houses, vehicles and legitimate investments needs a laundry.

Mr. Drug dealer buys a private fixer upper offering the seller the asking price with a hundred grand to be taken in cash. Then pay trades cash to fix the place up. Sell retail, the money is legit to be spent on blue chip stocks and score as well on the market increase. CRA sees it as a principle residence transaction.

The problem is we complain about our kids futures but we don't want to participate in a solution. I have no problem with a cap gain tax if done in a methodical way that allows people to adjust.

My complaint is that the political system is so corrupt that the taxes generated will go to pet projects, not paying down debt or funding reality education.

 

[nobbie48]

The only way I would agree to a capital gains tax (and my opinion doesn't matter) was if the capital gains was calculated on any property that you own...as long as you own it less than 5 years. I still believe that the main issue is that housing in Canada has become an investment vehicle. As such, you've got flippers that buy, reno, live a year and a day, claim principal residence, and sell for 100% tax free gain. Once again, I have nothing against flippers / renovators that do this by the book, and claim the gains as income on their books. My issue is with those that gain the system.

Sell a house within X of ownership:
1 year - max % allowable
2 year - 40% tax
3 year - 30% tax
4 year - 20% tax
5 year - 10% tax
5+ - 0% tax

This removes a lot of incentive for quick flips as the flippers work on a volume model. Fast flips are easy money. If they have to carry the mortgage / insurance / property tax / expenses for an additional X years...that incentive disappears proportional to the time held. Majority of people do not have a need to flip a house within 5 years. Sure there are extenuating circumstances...but I'd say those are fairly rare.

These guys tried it, and got caught, but the CRA isn't savvy enough to collect 100% of the gains...

Quick home flipping piques the interest of the CRA

A recent Tax Court of Canada case illustrates how repeated home sales will lead to the profits being taxed as profits, writes Bob Aaron

www.thestar.com

I'm fully against taxing the capital gain of someone like @nobbie48 that has lived and built up equity over X years.

I don't have a problem with it if the money isn't squandered. It is almost impossible to close the existing loopholes. Our tax laws should protect Canadians not the looters.

 

[GreyGhost]

I don't have a problem with it if the money isn't squandered. It is almost impossible to close the existing loopholes. Our tax laws should protect Canadians not the looters.

Many of the "looters" are canadian.

 

[mimico_polak]

I don't have a problem with it if the money isn't squandered. It is almost impossible to close the existing loopholes. Our tax laws should protect Canadians not the looters.

Agreed. There’s too many loopholes and I think it’d be hard to find people not willing to overlook them. Everyone wants ‘free’ healthcare, education and all the beautiful things we have here....but no one wants to pay for it.

I had a rental property, paid my taxes every year for a decade and then dropped close to 100k after we sold in capital gains. Did it hurt? Yup....did it suck? Yup....but I understood the requirement and no point fighting it.

But be damned sure I exercised every option to reduce that bill that was legally available to me.

 

[Deleted member 50930]

BNN Bloomberg – Canada Business News, TSX Today & Interest Rates

Get the latest Canadian business news, TSX updates, interest rates and Bank of Canada coverage. Explore stock market investing and get expert financial insights on investment portfolio strategies.

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Majority of Canadian homeowners have no plans to sell amid a tight supply and low rates, renters continue to be outpriced - TechBomb News

TORONTO, April 21, 2021 /CNW/ – As supply remains tight in key regions of the Canadian housing market, a recent CIBC survey finds that most homeowners say the pandemic has not changed their intentions of staying put, with many choosing to use their accumulated savings to renovate their current...

techbomb.ca

Forget bubbles, Canada has a housing affordability crisis: Frances Donald

Episode 98 of Down to Business podcast

financialpost.com

 

[nobbie48]

BNN Bloomberg – Canada Business News, TSX Today & Interest Rates

Get the latest Canadian business news, TSX updates, interest rates and Bank of Canada coverage. Explore stock market investing and get expert financial insights on investment portfolio strategies.

www.bnnbloomberg.ca

Majority of Canadian homeowners have no plans to sell amid a tight supply and low rates, renters continue to be outpriced - TechBomb News

TORONTO, April 21, 2021 /CNW/ – As supply remains tight in key regions of the Canadian housing market, a recent CIBC survey finds that most homeowners say the pandemic has not changed their intentions of staying put, with many choosing to use their accumulated savings to renovate their current...

techbomb.ca

Forget bubbles, Canada has a housing affordability crisis: Frances Donald

Episode 98 of Down to Business podcast

financialpost.com

I'm with the "No plans to sell" crowd. While I'd like a place with room for a few new toys the situation is too erratic for my risk acceptance level.

Except for the equity advantage the first time buyer has an edge over the home owner wanting to move up, out or sideways.

The first time buyer knows what they have to spend and bid up to that amount. The main downside is they pull the trigger too fast on a purchase only to find they could have done better and stayed on budget.

An existing home owner has to gamble on the sales price on their old place as well as the price of the new one.

 

[mimico_polak]

Ugh I’m getting close to the middle of my term. Let’s hope rates stay this low when it’s time to renew. Right now approx $20k to break so not worth it for me.

I’ll call the broker today to get a HELOC on the house though. Good to have that money if needed. And it’s always easier to get money when you don’t need it than when you do.

 

[GreyGhost]

An existing home owner has to gamble on the sales price on their old place as well as the price of the new one.

Even years ago when some of this bidding madness was happening, I was talking to some people that were ****** their house sold for hundreds over asking. They bought before they sold and the jump turned out to be too small to make it worthwhile. They would have bought something for a few hundred more to get the jump they wanted.

We sold before buying last time (two years ago) so we knew what we were working with. In todays market, I have no idea. If you buy before selling, there is a very real chance that holding two properties can make or lose you a few hundred grand. Similarly if you sell before buying, there is a very real chance that prices run away and you miss out on a hundred grand or more. You could also be miraculously lucky and sell at the top and buy in a dip. No crystal balls, just luck.

 

[GreyGhost]

Ugh I’m getting close to the middle of my term. Let’s hope rates stay this low when it’s time to renew. Right now approx $20k to break so not worth it for me.

I’ll call the broker today to get a HELOC on the house though. Good to have that money if needed. And it’s always easier to get money when you don’t need it than when you do.

Do you already have a HELOC? I added one to the last house and it sucked. I essentially had to rebuy the house from myself. Lawyers, appraisals everything. Turned out I never needed to draw from it. Doh.