Should we expect higher property taxes on condos?
Todays Sun has an article about the municipal tax system in vancouver and the disproportionate load it puts on business owners. From that article:
Over on Burrard, not far from the bridge, Henry von Tiesenhausen of Commercial Electronics notes that, in a five-year period when the tax on his home increased 16 per cent (and when his company’s sales were flat) his business taxes rose 102 per cent.“I have to ask the question,” von Tiesenhausen said in a letter to Mayor Sam Sullivan, “is it worthwhile even operating a business in the City of Vancouver?”
A growing number seem to be asking the same thing — and answering in a way no one wants to hear. While commercial growth in the city has long trailed residential, the last two years have seen a disturbing new trend. For the first time, more businesses closed than opened.
In general a condo tower consumes more in services than they pay for, while businesses pay more than the services they consume. With the huge number of condo projects downtown, and businesses shutting down should we expect property taxes to increase greatly to take up the slack, or should we expect the city to adapt its budget to spend less on services?
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February 19th, 2007 at 5:05 pm
domus,
The taxes that make the best economic sense are often the least popular.
GST is a case in point. There’s a pretty sound argument that an increase in GST to reduce income taxes would result in increased productivity and investment, but consumers don’t like GST because they’re reminded of it every day.
(By the way, in response to your earlier objection to Warren, basic groceries, prescriptions and bus passes have always been exempt from GST).
LVT may also have good economic arguments in its favour, but you can’t escape that it amounts to a government confiscation of part of the value of your land (by reducing the benefit of future rents). The landowning majority wouldn’t stand for it.
February 19th, 2007 at 12:09 am
About house and land taxation, there is an interesting refernce in today’s London Guardian (UK). Here is an exercpt:
“Residential property in Britain jumped by £410bn in value last year. Only about 2% of that gain was taxed by stamp duty or inheritance tax. Would prices have risen so far so fast if land values were taxed more? No.
The discussion of land value tax, which has been around since the days of Adam Smith and David Ricardo, is gaining ground again as people reflect on the absurdities of the housing boom.
Next week sees the launch of an edited and abridged version of the classic 1879 work by the American economist Henry George, Progress and Poverty*. George is widely seen as the father of land value taxation and his ideas are as relevant today as they were in the aftermath of the US civil war.”
The article is really interesting and discusses the recent and future fortunes of the UK Housing market: the link is
http://money.guardian.co.uk/ho.....00,00.html
For the old (and the newly minted) bulls, just a warning: this guy is not very optimistic on housing…..
February 18th, 2007 at 11:34 pm
Freako:
probably right, nobody wants to feel like overpaying for something.
The funny thing is that you would not be overpaying in most cases…..
As for house taxes: I guess part of the story is about presenting clearly the pros and cons of things to people.
If you increase house taxes you should decrease something else: this is very feasible in periods of surplus at the federal level, like now!
Any how, it seems that some bear bloggers (maybe VHB himself…??) will end up paying property taxes soon. The world is achanging……but I am still betting on a large downside in prices and I just have a nagging feeling that I am right on this one….
February 18th, 2007 at 10:40 pm
On a similar note, want to save the medical system some money. Implement a token fee to use medical services (say $10). Give every household a tax credit for say $100 to cover this token fee. Waive the fee after ten visits.
The above really doesn’t mean much if people use medical services as much as before, as it will be totally revenue neutral. But I guarantee that visits will be down a fair chunk. If the average household only uses the services 7 times, the government is out of pocket $30. BUT they save $180 for the $60 (or whatever) a pop they would have been charged by the doctors. This is clearly a win-win (unless you happen to be a doctor). But it would never fly despite the fact that nobody is worse off. The $100 credit is soon forgotten about but people will scream bloody murder about the user fees.
February 18th, 2007 at 10:33 pm
“Why then so much hostility to higher property taxes whenever mentioned in a public forum?”
Because, as mentioned, we have no problem kicking people, as long as it is not us. Do an informal survey, and you will find that most believe that “the rich” and corporations should bear the entire tax burden. Since most people are homeowners (or plan to be), they look at it as an inverse Robin Hood. That will never change.
February 18th, 2007 at 8:19 pm
“I am not quite sure I get your previous argument about the rich guy living in a shack: if he gets utility from holding money and not consuming it, it is his own right “
Freako said:
“And I am not sure if you are agreeing or disagreeing with me.”
I agree with you. Also I completely agree that consumption taxes would in principle allow more work and savings. Why then so much hostility to higher property taxes whenever mentioned in a public forum?
February 18th, 2007 at 7:51 pm
I agree with freako. Taxes eventually get passed to end users, which is customers and renters. Actually, some of this gets passed to employees, as the pool of jobs in urban centre shrinks, while pool of workers expands due to increased density. This will and have created reverse community, which I can’t say if it’s a good thing or bad thing.
From an efficiency point of view, residential taxes should be increased, and two-tier system eliminated. That little old lady living in a SFH by herself is occupying a resource that can be better used by several working age people. Driving young people to the suburbs simply puts more strain on the infrastructure.
To be fair, condos likely consume a lot less resource than SFHs, as the occupants are likely younger, the need for street maintaince per household is less, and they occupy less land per unit. That’s why city councils are always so keen on approving “vasectomy housing”.
February 18th, 2007 at 3:18 pm
I should mention that several European countries have VAT (GST equivalent) of well over 20%. And monstrous income taxes to boot.
February 18th, 2007 at 3:17 pm
“Freako: If we went with pure consumption tax wouldn’t we just get a situation where people earn here, but most of their consumption happens elsewhere? “
Well, yes and no. People would have incentive to travel and shop elsewhere. But even though there is no iron curtain, you are fairly locked into our economy. How many days a year do you want to be away from home. You can’t drive down to Blaine every time you need an oil change. As per wikipedia, the GST alone accounted for 17% of Federal Tax revenue and income taxes (presumably including capital gains) 40%. Thus all else the same, a 15-17% GST could replace the lost income tax revenue. That may encourage people to spend a little extra on their vacation, or cross the border for trinkets more often, but it would not drastically alter conumser behavior.
Of course all else is not equal. People may save more (hopefully invest productively), buy smuggled goods, or smuggle themselves. On the other hand, people would work more and have more money to spend. There would be massive savings in tax collection expenses, and individuals would on average spend less on tax advice and preparation. Fewer lawyers and accountants can’t be all bad.
Of course, that was an extreme example of going all out. I would settle for a minor shift in that direction.
February 18th, 2007 at 3:00 pm
“I am not quite sure I get your previous argument about the rich guy living in a shack: if he gets utility from holding money and not consuming it, it is his own right “
And I am not sure if you are agreeing or disagreeing with me.
Just as the public have hang-ups with regards to cost-plus pricing, they also have hang-ups about corporate profits. Every time the big banks have record profits, people holler. That is obviously silly, as a bank is not a person. Bank stock is owner by everything from poor old widows to middleaged autoworkers (mutual funds etc) to billionaire tycoons. The individual obviously gets taxed when he receives dividends and sells shares for a profit. The ONLY reason for taxing corporations is the prevent deferal (and hence benefitting from tax free compounding). Corporate profits have NOTHING to do with transfer payments or social welfare. At least not directly. It does turn out that wealthier people own more stock on average, but that really is beside the point IMHO. If you tax consumption heavier and reduce income tax you will simplify the tax system, collect from rich, poor and criminal, and encourage people to work harder and spend less. And that is win-win.
The ultimate impact of the lemonade surcharge is to reduce the amount of lemonade consumed. Of course, people still have to drink, so maybe sale of pop went up.
All else the same, taxing investment property heavier will reduce the supply of rental property and increase rents. It will also increase the demand for ownership. Owner’s would outbid investors for properties and the ownership percentage would go up.
I don’t necessarily agree with that. There are valid reasons for wanting to be a renter (lower risk, increased mobility etc). Landlords just supply this market. Contrary to conventional wisdom, the landlord tenant relationship is not feudal, but a win-win. But how many times have we not heard the “why pay your landlord’s mortgage when you can pay your own” and “rent is pissing money away”. An owner is better off monetarily in the long run, but that is simply compensation for risk, which is no free lunch.
Totally agree that the present market has hugely negative externalities. We could of course impose a speculation tax. But I would prefer to see an active derivatives market, such as the Case-Shiller in the U.S. That way ownership and exposure need not go hand in hand. If I bougth a typical SFH for $650K I would simply short the GV SFH benchmark index for the same amount. That way no owners to be need to wait it out, and those who want to lock in prices early can still enjoy renting and partying in Kits a few more years. True that it doesn’t help with high payments. In that case write a call option, which will provide you with upfront cash in return for giving up some upside. And so on. Of course, way too complex for average folks, but definitely a win-win. I guess it could be marketed as “price insurance”.
February 18th, 2007 at 1:13 pm
patriotz:
Before I see property taxes jumping though, I’d rather see a GVRD-wide tax system
You must be joking. Assessments are much higher in Vancouver proper than in the burbs for the same sized property. A GVRD-wide tax rate would hose city property owners.
Of course, we do already have GVRD-wide taxes for GVRD services, for which Van proper taxpayers are disproportionately taxed for the reason given above.
Let me clarify a little bit. As discussed on this blog in another thread, taxes aren’t set by a specific rate, they are set based on the City’s budget. They look at the assessments and set a rate that way. This means that the city isn’t rolling in money since the massive property increases, and won’t be shutting down services if/when there is a market crash.
With that in mind, I think a GVRD-wide budget and payment system is more appropriate. The idea being that suburbanites pay a few more taxes and Vancouver businesses pay a little less.
February 18th, 2007 at 10:52 am
Pope:
I very much disagree.
Housing taxation is century old and has been adopted in the most liberal countries, where proportional labor income taxes are lower….
Just as an example, take Holland: ever wondered why in Amsterdam there are so many houses with really ‘tight’ fronts? Traditionally they would have to pay taxes according to the ‘widt’ of the fron of their houses, which led them to build narrow and elongated (to the back) houses. One good thing was that urban development was very efficient space-wise.
So, two lessons to learn:
1) taxes on housing are effective in altering people’s behavior;
2) They are a good substitute for income taxes and are popular in countries which are generally far from socialist regimes.
February 18th, 2007 at 10:38 am
What on earth are you talking about?
Patriotz: I should have been more clear, I was referring to higher taxation solely on vacant speculative units, though even that I’m thinking doesn’t really make sense. It wouldn’t be difficult to claim that a unit isn’t vacant when it really is, and these people are already very exposed to the market downside. That risk starts to become very clear when we see tv coverage like the CTV news story about prices dropping.
I was also forgetting about the homeowner grant, though that hardly makes up for the difference in price between owning and renting in the current market.
Freako: If we went with pure consumption tax wouldn’t we just get a situation where people earn here, but most of their consumption happens elsewhere?
February 18th, 2007 at 9:48 am
Freako:
assuming that part of the additional housing taxes were carried by the renter, isn’t it true that there would be also a change in the cost of ownership? The same argument of the lemonade stand also applies to buy-to-let: now, it is true that in the long-run this would simply mean an adjustment in the supply of housing. But we really seem to live ina succession of short-rruns, rather than a long-run, when it comes to the housing market.
Off-equilibrium episodes can last years and can have very serious real consequences….
So, I reckon that limiting the viability of using housing as pure investment would be a great achievement of taxation……..
I am not quite sure I get your previous argument about the rich guy living in a shack: if he gets utility from holding money and not consuming it, it is his own right (as well as his own problem, I would say)…..in fact, I think that consumption and sin taxes are not a bad way to go at all, if it wasn’t for rather moronic government who feel ashamed to propose them….
February 18th, 2007 at 7:11 am
“That reduces supply, which increases the supply.”
I meant increases PRICE of course.
February 18th, 2007 at 7:08 am
“Can a landlord really pass along tax increases to renters? Maybe in a tight rental market like we have right now, but it looks like we’ll soon have a lot more vacancies once all these buildings finish. “
Consumers have a paranoia about cost plus pricing. For example, when the NHL salary cap went into place, there was a call for lower ticket prices.
Obviously rental prices are set by the market, a landlord does not have pricing power. If the market can bear a price increase because of increased landlord expenses, it could bear it without it as well. But it is ultimately passed on because of the impact on supply.
Assume that I run a lemonade stand on a hot day. I am not the only one, so I need to price to market which I determine to be $1.50 per cup. The government cracks down and forces a 50 cent surcharge on every cup. That does not change demand one bit, as the same number of consumers are willing to pay $1.50. What will happen is that some sellers (those with the highest cost base) will pack it in and leave the business. That reduces supply, which increases the supply. I would expect increases in property taxes to flow into the rental market in a similar way. It may take some time, but it will get there.
February 18th, 2007 at 6:58 am
“in which sense is better to have a system of rebates compared to taxing 2nd and 3rd residences in a heavier way?”
Well its not mutually exclusive, but administering a system which determins what is a 1st, 2nd or 3rd residence is no walk in the park.
Also, it would have to be done on GVRD and FV wide basis, else you would cause displacement and all kinds of other unintended consequences.
Taxes can be collected in many ways, some simple some complex. What would happen, for example, if we dropped income and corporate taxes altogether and put the entire tax base on consumption tax, property tax, sin taxes and user fees. Obviously the ultimate purpose of money is to consume it, so there would be no hiding from the tax man. Yes a person with high income who lives in a shack and spends nothing will be far ahead, but given that he works hard and lives in a shack, he deserves to get ahead.
February 18th, 2007 at 2:36 am
Can a landlord really pass along tax increases to renters? Maybe in a tight rental market like we have right now, but it looks like we’ll soon have a lot more vacancies once all these buildings finish.
February 17th, 2007 at 10:46 pm
STEPHEN HARPER
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Is better than some user here.
I am not agree with that argument by some user,that investment property should be tax hard.
big to small companies or big to small bussiness are standing on the shoulders of Investor’s.
Investor means to put your money at risk that money you can enjoy easy life,To cut short on our tommy,cut short on child’s need for education.and put that for Investment for better future which nobody know’s just a dream.
Investor put their life on risk always worried about bills then payments paying to bank loans.
Working extending hours makes us weak,health on risk lots of people lost their life in investment.
If we loose in Investment no body is to cover up we get frozen accounts then courts and police kind of stuff.
If we make some profit there is government to share half and half.
Stephen Harper’s government bringing a legislation on table that
“If some one cash his investment and reinvest that same amount in making new invesment with in six month there will be no tax” thats mean we get operatunity to switch over.
but that bill is on line up as there are lots of construction’s are going on so not sure when that bill is going to pass but hope for something good to be happen.
February 17th, 2007 at 9:37 pm
Taxing investment property higher than primary residence makes a whole lot of sense
What on earth are you talking about?
This is increasing taxes on renters (who ultimately wind up paying them) to subsidize homeowners. IOW, a reverse Robin Hood.
We already have the modest homeowner grant which is in itself unfair to renters. I suppose you want to move up to the level of grand scams like owner-occupier mortgage deductibility and Prop 13 south of the border, which further fleece renters and subsidize owners?
The reason Vancouver is losing businesses is simple: commercial RE prices are driven by fundamentals, residential RE prices are not. When sanity returns to the residential RE market the exodus will taper off.
If you want to want to stop speculation in residential RE, impose a punitive short-term capital gains tax at either the provincial or federal level. Over to you, Gordo and Stevie (yawn).
Before I see property taxes jumping though, I’d rather see a GVRD-wide tax system
You must be joking. Assessments are much higher in Vancouver proper than in the burbs for the same sized property. A GVRD-wide tax rate would hose city property owners.
Of course, we do already have GVRD-wide taxes for GVRD services, for which Van proper taxpayers are disproportionately taxed for the reason given above.
February 17th, 2007 at 9:35 pm
Freako:
in which sense is better to have a system of rebates compared to taxing 2nd and 3rd residences in a heavier way?
I know I am comparing apples with pears, but I find that taxation systems with little claims and rebates tend to work better…..
I might be wrong, but I feel that houses are simple to tax: and they serve a very clear purpose, before being investments. If you want to make money using them you should be free to do so. However you would have to compensate a posrtion of the population for bringing a rather unpleasant side-effect (externality) in many conjunctures of the business cycles.
No rebates or consumption taxes needed.
If you really need to have 3 houses, you might as well afford to have higher taxes on them……
Trust me there is no punitive intention in what i am saying, it just seems a very reasonable thing to do.
February 17th, 2007 at 9:14 pm
If you increase GST on all goods, it means that a pensioner will have to pay more taxes for fairly necessary goods, like bread, milk, medicines, bus tickets.
Regressive is a strong word. IMHO, even a flat tax is progressive in the sense that you pay more tax as your income rises. And in that context, so are consumption taxes. The more you make, the more you spend, the more tax you pay.
Anyhow, the regressive (in the traditional sense) are easily rememdied. A tax credit levels the playing field (which is exactly what the GST credit intends to do). If the GST goes to 10%, the typical pensioner who spends $10,000 on GST taxable consumption pays an extra $400. So simply cut them a cheque for that amount and they are no worse off. Taper the credit with rising income, and it is no longer regressive.
February 17th, 2007 at 5:16 pm
Warren:
you make some really good pints, thanks.
I think your reasoning is sound, although the consumption taxes can have a general disdvantage: they are extremely regressive.
If you increase GST on all goods, it means that a pensioner will have to pay more taxes for fairly necessary goods, like bread, milk, medicines, bus tickets. You cannot do without them. Now, for a poor person these consumption items account for a large share of total expenditure. For a richer guy, they are almost negligible.
It is not SUV that we are toalking about, but everyday cost of life.
In any case, i see your point about income taxes being distortionary: not much argument about that.
However, when it comes to property taxes, I don’t see much of a distrsion: you cannot rent more or less. You either do it or don’t.
I understand that from a landlord point of view it may be an unpleasant thing to consider, but generally house taxes seem to be not as evil as some other taxes.
Anyone has thoughts/comments to prove me wrong? I’d be really glad to hear them…..
February 17th, 2007 at 4:37 pm
It seems that housing and consumption taxes are the lesser evil…..
I would really enjoy a good debate to hear other people’s opinions on thiese issues….
I have a few points. As a landlord/property owner of a downtown condo, I pay the “full” property tax value, which is something like 0.6% of the assessed value per year. I don’t think an increase is uncalled for, but not too much. The owner occupier reduction as-is is pretty fair.
My mortgage is down to almost zero, so the marginal income tax hit is my biggest issue right now, and the capital gains is what makes me want to hold it really long term rather than consider selling.
Before I see property taxes jumping though, I’d rather see a GVRD-wide tax system. As a resident and owner in the City of Vancouver, I think we pay for the lion’s share of the taxes in the Lower Mainland, and we subsidize the area-wide activities (think police and cleanup for Symphony of Fire, rejuvenation of Stanley Park, etc.) I believe Toronto did this recently, I wonder if it was partially as a result of the business property tax fallout.
Ranting on taxes in general: damn straight income tax is a productivity killer.. I don’t have much motivation to work harder/longer/better in the tax bracket I’m in. I’m looking into starting my own contracting business in my industry and working LESS for more per hour.
When Harper and friends were talking about GST reductions, I remember reading and seeing the opinions of more than a few economists who thought consumption taxes were the best kind, and income taxes were the worst, for a variety of reasons. I don’t want to see the level of government service decrease, but I’d rather have a 10% GST and the equivalent in lessened income tax. Tax the idiots who borrow money for a $70k SUV, don’t make it hard for me to work and save/invest my after tax income.
February 17th, 2007 at 2:00 pm
Scoop:
cheers! That was really good info, thanks for taking the time to share it.
So, it seems that at the local level there is not much progressivity, but this is compensated for at the national level.
So, the carrying cost of an investment property in terms of taxes is quite large, if you are right. One more reason to believe that when price rises stop, people can feel the pain. Let’s wait and see…..
Freako:
point well taken about the long-run. I agree with the equilibrium reasoning with adjusting supply. However, the housing market is stop-and-go. Large surges in supply are followed by ‘dry’-supply periods.
This makes the argument for repeated and prolonged periods in which the externality issue may be relevant. After all, we are not always in long-term equilibrium: we have seen that for the last 4 years things have been quite off-equilibrium in Vancouver and the externality cost has been paid by many people (some on this blogs). I guess taxation might atually help smooth out things: especially if it does not affect labor supply, like income taxes. It seems that housing and consumption taxes are the lesser evil…..
I would really enjoy a good debate to hear other people’s opinions on thiese issues….
February 17th, 2007 at 1:27 pm
Stock trading is progressively taxed, in the sense that income from trading accrues to total income and triggers higher tax brackets for individual taxation. Moreover capital gains are quite heavily taxed.
Now, I am not sure what the tax regime is for housing
I think that scoop already addressed some of this, but for a typical equities investor and a typical RE investor, the way they are taxed is quite similar.
Gains from both are considered capital gains, and so only half is taxable. Rental income is taxed progressively, but interest is deductible (as is interest on funds used to invest in equities). Dividends are taxed progressively after a tax credit.
So yes, both are ultimately taxed progressively, but only in part.
February 17th, 2007 at 1:21 pm
It is however an individual choice implying a negative externality for other people.
As you mention allude to, for a negative externality to have any staying power, a market failure is required. I am not so sure one exists, at least not in the long run. Irrational people who hoard apartments will reduce supply, which will increase prices, which will lead to increased construction, which will lead to increased supply, which will take prices back to where they belong. Furthermore, should the apartment hoarder be the greedy type, they may panic sell into the declining prices and we now have MORE housing than we started with, and hence lower prices.
Clearly the present scenario is a market failure (society wide irrationality), so in that sense there are negative externalities present. But in the big scheme of things, the situation is self-correcting, so I am not sure if taxation as social policy is required.
Overall, I do believe in reducing income taxes (because of the negative consequences on productivity), so I’d be all for increased property taxes if they were offset by income tax reductions.
February 17th, 2007 at 12:23 pm
In short domus, a real estate trader is actually taxed at more levels and more heavily than an equivalent trader in stocks.
But when the market becomes speculative, people don’t care much about taxes, because they think they will get rich regardless.
February 17th, 2007 at 12:12 pm
but it seems to me that, after some fixed costs, the marginal rates are flat or not very steep
(1) above is municipal taxes – they are basically flat, other than the small reduction for your principal residence. In theory this is your payment for municipal services, though as the article notes you’re probably not carrying your share.
(2) and (3) above are federal/provincial income taxes and apply at the progressive rates if earned by an individual. Same tax scheme as applies to income from stock trading.
February 17th, 2007 at 12:10 pm
1) What are the percentage ‘jumps’ in taxes as you pass from your first to your second residence and then to the third?
It’s not progressive, it’s just a tax reduction for your principal residence. If you’re a senior or disabled, you get a greater reduction. If you don’t live in the home, or it is worth more than the threshold, you don’t get any reduction.
Let’s face it though – municipal property taxes at current rates are a pretty minor factor wben considering the costs of holding a property.
2) When you make a capital gain on a house because of appreciation, is it taxed?
If it’s your principal residence, it’s exempt. If it is a capital property (e.g. an income-earning property or a personal-use property that’s not your principal residence) you pay tax at capital gains rates, ie 50% of your regular tax rate. If the property is inventory because you’re a developer or your business is buying and selling properties, the “gain” is considered income and fully taxable (top rate about 44%).
3) How are rental incomes taxed? How does taxation compare to the taxation of dividends?
Net rental income is taxed at regular tax rates (again, up to 44% for individuals). However, since you get to deduct costs like mortgage interest and maintenance, often there’s little or no net income to report. This raises the question of whether you can use a loss on your property to reduce taxes on other income, but that’s a big can of worms.
Dividends are subject to tax at lower rates to recognize taxes already paid by the company paying the dividend.
February 16th, 2007 at 9:57 pm
I guess I should qualify my statement:
1) KEEPING AN APARTMENT VACANT IS NO FREE LUNCH: very true. It is however an individual choice implying a negative externality for other people. It seems that, when there is a market failure, taxes are not a bad way to generate better allocations. Here the market failure (or externality) comes from the fact that people use housing for purely speculative reasons. Houses have always been a way to save money, but unlike stocks they also serve a direct consumption purpose. That’s where the externality argument kicks in: no pricing takes that into account.
My argument here is that keeping an house vacant is your right and you should be free to do so. But society has a right to make it more expensive. It is a bit like using a very polluting car: fair enough, I am all for freedom as long as you pay for it. No free lunch…..
2) Stock trading is progressively taxed, in the sense that income from trading accrues to total income and triggers higher tax brackets for individual taxation. Moreover capital gains are quite heavily taxed.
Now, I am not sure what the tax regime is for housing (and I’d be really glad if someone could enlighten me) but it seems to me that, after some fixed costs, the marginal rates are flat or not very steep….
February 16th, 2007 at 9:20 pm
“These guys get a free ride; they pay the same property taxes as owner occupiers (the little old lady of the example above) but they use houses as traders use stocks. However stock trading is ‘progressively’ taxed, unlike housing. There is virtually a flat-tax on houses at the moment.”
Can’t say I follow. Holding an empty apartment is no free lunch, so you are hardly pulling a fast one. Second, I don’t follow that stock trading is progressively taxed. Do you mean a professional trader who is not allowed to claim capital gains?
February 16th, 2007 at 9:16 pm
“Taxing investment property higher than primary residence makes a whole lot of sense since you’re essentially turning a residence into a business that you hope to make money with.”
Well, things have a tendency to flow throw. If you tax businesses heavier, it will ultimately be passed on (reduced supply) to consumers anyhow.
If you tax investors heavily, it will get passed on to renters.
I’d be vary of using property taxation for transfer payments and redistribution. Sometimes we think that if we kick somebody who is not us, it won’t hurt. But it may.
I don’t see why buildings that are rented should pay higher taxes than an identical unit with the same type of residents (only difference being ownership). We already have the home owner’s grant, BTW.
February 16th, 2007 at 7:10 pm
DOMUS AUREA
If that was helpful I give credit to Vancouver Condo.Info
Who bring’s us here to disscuss and provide help full topic to run our life easy on real estate and related concern’s
February 16th, 2007 at 6:43 pm
SATV,
your comments are as refreshing as ever. Hard to disagree.
Now, going back to taxes on housing…….
February 16th, 2007 at 6:32 pm
CITY IS SMART THEN MY GRANDPA
—————————–
Taxing investment property means kill 50\50 share.Investment also creat capital gain 50% goes to government 50% goes to invester and thats after paying interest rate on mortgage or personel line of credit.
Do you think that some one going to hose you twice if anybody does that people will stop buying investment property.
But i can say people who invested in woodward’s village were lucky they will pay capital gain according to their gross income and thats for all people
If you invest in gastown risk your property and life in neigbhour like hastings. your capital gain can pay you off better then investing anywhere else.
Announcement(statement)was made from city on the time of January 2007 assessment that “because of lots of construction is underway”city can genrate lots of income from kind of sources,so they have no plan to raise property tax.
for bussiness shut off’s its competition anybody can get out off bussiness I have notice lots of space for lease are also empty.thats mean how many star bucks can you open nothing else run for sure.Its hard to open Adult toys shop every where////loughing
February 16th, 2007 at 5:38 pm
People often mention taxes in the debate on optimal investment choices (look at the recent discussion on Income Trust, and subsequent legislation). I am sure something is skewing investment toward RE, and part of it could be taxes. But it is not clear to me what tax-wedge is introduced in current legislation.
Anybody knows this stuff? few lines of explanation could help quite a lot to figure out how important this is……
February 16th, 2007 at 5:04 pm
The solution is clear: We tax flippers, bloggers, opinions & leopard print.
..especially leopard print.
February 16th, 2007 at 4:54 pm
VHB:
more like a leopard’s paw in the back (or bite in the neck) of house flippers. That would be my favorite Spring collection.
Seriously though, I think taxes have been a bit overlooked: i am not even sure about the facts. I wonder if someone in the blogging community could shed some light on this.
February 16th, 2007 at 4:39 pm
“VHB is a trend-setter”
Just wait until you see my fabulous spring pret-a-porter collection. (hint: leopard prints are in big this year with the VHB, baby!)
February 16th, 2007 at 4:30 pm
scoop: There is the grant for your primary residence, but AFAIK there is no penalty for vacancy on investment property.
February 16th, 2007 at 4:15 pm
Scoop:
it seems you are informed about this, so i want to ask you a few questions.
1) What are the percentage ‘jumps’ in taxes as you pass from your first to your second residence and then to the third? In other words, how progressive is taxation of houses?
2) When you make a capital gain on a house because of appreciation, is it taxed?
3) How are rental incomes taxed? How does taxation compare to the taxation of dividends?
I am genuinely curious to know from someone who has the numbers.
I suspect that taxation of houses must be less progressive than other investments, as it could account for much of the liquidity diversion towards this asset category.
Anybody can help answer the above questions?
February 16th, 2007 at 4:02 pm
Taxing investment property higher than primary residence makes a whole lot of sense
It is such a non-brainer that I wonder why we do not have such tax system.
We do and it has been in place for 50 years. The Home Owner Grant program reduces the amount of property taxes paid on your principal residence.
You can argue that both residential property taxes and the grant should be increased. But the 2-tier structure (actually 3-tier when you get down to the details) is already in place.
February 16th, 2007 at 3:39 pm
No wonder that it makes a lot of sense for many people to put all their savings in this asset.
Unless the market ‘corrects’ and you find your self over-leveraged for a property thats worth less than you owe for it.
Such a situation would also make extra taxes on vacant speculative property all the more painful.
Why can’t government just learn to spend less?
February 16th, 2007 at 2:53 pm
I am sure some people would see it as a ‘tax-grab’. These are the same people who are happy to hold apartments vacant and wait for appreciation.
These guys get a free ride; they pay the same property taxes as owner occupiers (the little old lady of the example above) but they use houses as traders use stocks. However stock trading is ‘progressively’ taxed, unlike housing. There is virtually a flat-tax on houses at the moment.
No wonder that it makes a lot of sense for many people to put all their savings in this asset.
I think there should be no punitive intent in additional property taxation, but it should be done to rebalance the relative weight of taxes on ‘investments’.
I wonder if VHB has ever discussed or posted anything about it. It seems a very relevant topic and I am surprised it is not often discussed. Plus, VHB is a trend-setter and the press checks him out often: it might actually start a serious public debate on the topic……
February 16th, 2007 at 2:41 pm
Taxing investment property higher than primary residence makes a whole lot of sense since you’re essentially turning a residence into a business that you hope to make money with.
It is such a non-brainer that I wonder why we do not have such tax system.
As you point out it would be very unpopular with some people, and would likely have the short term effect of lowering property values over-all. No matter what they do to deal with this problem it will be viewed as a ‘tax grab’ by some people.
February 16th, 2007 at 2:36 pm
It seems to me that taxing second (and investment) homes might be a very simple way to:
1) raise revenue in a fair way;
2) reduce speculation;
3) relieve the burden from business.
Who would lose from such policy?
Well, all those people who buy houses and do not rent them, or just hold many houses as rental investments.
In fact, I would tax more depending on the amount of houses/flats you have.
If you are really into making money out of renting out, you might as well pay for it in a ‘progressive’ way.
I bet someone at bthe local government level has some vested interest or is afraid to ‘hurt’ friends/voters.
It is such a non-brainer that I wonder why we do not have such tax system.
February 16th, 2007 at 2:23 pm
all properties that are not the main residence should be taxed quite more heavily.
Domus: I couldn’t agree more.
February 16th, 2007 at 1:56 pm
Very interesting post.
I believe the answer is simple: all properties that are not the main residence should be taxed quite more heavily.
It would not be fair to tax an old lady for leaving in her ancestral home. but I would not feel sad for taxing a property flipper for his portfolio of property investments….
February 16th, 2007 at 12:49 pm
When I lived in the GTA a few years back, this was a huge hot-button issue. Businesses were fleeing the city proper for the greener pastures of the suburbs. I’m not sure if, and how they addressed the issue, but it seems that Van is going to deal with this, too.