REAL ESTATE: Home Sales Vital To Economic Recovery
Having pushed the restart button and emerged into the “New Normal,” we discover that B.C.’s economic engine is but a shadow of its former self. Citizens and businesses must now face the long-term consequences of the national measures taken to combat the Covid-19 pandemic. No amount of government stimulus funding will make up for the loss of personal income, investments and business revenue incurred during the shutdown, and all the federal stimulus money that was pumped into our willfully stalled economy, must somehow be re-paid. Quoting figures released by Mike Campbell, Money Talks, the current debt burden per Canadian individual, including children and seniors, has increased by $29,000 in the last 65 days!
The burden of this debt is now to be shouldered by us all, and it will ultimately be recovered in some form of taxation. The government felt certain Canadians could shoulder an increase in the Federal Carbon Tax during the shutdown, so will they be looking to increase taxes or create new ones to keep Canada solvent?
It is critical that increased taxes are not further eroding one of the main economic growth factors like the housing and real estate market to compensate for overspent coffers. The real estate industry just had the new Foreign Buyers Speculation tax levied upon it in early 2019, and it ultimately had a negative effect on home sales and not the desired outcome of making housing more affordable in B.C..
Real estate sales transactions are already subject to taxation for home buyers, but at present, there is no taxation due upon the completion of a sale by sellers, unless you are a foreign national. Home buyers in B.C. already pay a provincial Property Transfer Tax (PTT) when they buy a home. The tax is charged at a rate of one per cent on the first $200,000 of the purchase price and two per cent on the remainder up to and including $2 million. The PTT is 3 per cent on amounts greater than $2 million. If the property is residential, a further two per cent PTT is payable on the portion greater than $3 million. Home buyers must also pay GST/HST tax on the purchase of a new or completely renovated home. Currently the title owner’s profits from the sale are not subject to taxation unless the sale of the home is deemed income. Foreign buyers are subject to different taxation laws and already pay taxes on both the purchase and sale of landholdings in B.C..
In 2020, over 530,000 real estate sales transactions are projected to be completed in Canada, and for most part, profits collected from those sales are not currently subject to any taxation. It is one of the last sales a citizen can complete without the long arm of government taking a percentage of what they deem a compulsory contribution to federal revenue. Could this be slated to change in the near future? Is the government eyeing this untapped source of sales taxation? Would you be able to achieve your long term real estate goals if you had to pay taxes on the sale of your home or property? Most households need every penny earned in a real estate sale to make their next home purchase a reality, or they are counting on that income for their retirement. An ill-timed tax on landholding sales profit could bring with it disastrous consequences for the longevity of the market and the failing economy.
Resale housing transactions are one of the biggest drivers of economic growth, and a key factor to our recovery, as ancillary spending is attributed to more than $32 billion per year across the country. The Canadian Real Estate Association released their report titled “Economic Benefits Generated by Home Sales and Purchases over the MLS System” in October of 2019. Their findings showed the direct and indirect employment resulting from home sales is significant, and an estimated 234,015 jobs were generated nationally by average annual resale housing activity between 2016 and 2018. The report stated some $64,100 in ancillary expenditures are generated by the average housing transaction in Canada over a period of three years from the date of purchase. Home purchases and sales create significant spending and major spin-offs to other industries. Finance, insurance, construction, manufacturing and professional service sectors all benefit greatly from home sales. Any new tax levied on real estate transactions would have immediate, negative trickle down effects that would stifle badly needed economic growth.
In conclusion, citizens and businesses alike are tasked to find creative new ways to keep an income stream and their own budgets balanced with less, and the government must find new revenue streams to offset their spending without further hampering economic regrowth. It is imperative that key economy building industries like real estate and the re-sale housing market remain stable, so the economy does not come to a complete standstill and create a great depression of more foreclosures and insolvencies.
We are facing one of the greatest challenges of our time in rebuilding the Canadian economy, and real estate and the housing market will play a monumentally significant factor in how quickly we are able to jump start our economic engine.