Canada’s homeowners – who are about twice as rich as the country’s renter households – pocketed a tax subsidy of $11.5 billion in 2007. That’s more than more than five and one-half times greater than the annual federal investment in affordable housing programs for low and moderate-income households. On Friday, January 2, 2009, federal Finance Minister Jim Flaherty quietly released the 2008 edition of “Tax Expenditures and Evaluations” – which lists the annual cost of the tax cuts and other benefits that flow through a long series of personal and corporate tax breaks. At the bottom of page 19 of the 53-page document, the federal finance department reported that the annual federal tax break to homeowners jumped to $11.580 million in 2007, and is expected to remain close to $11.5 billion annually until at least 2010.
The homeowners’ tax subsidy is the government’s estimate of the benefit that higher income Canadians receive from the income (capital gain) that they receive when they sell their house (principal residence) at a higher price than it was purchased. The biggest gains – therefore the biggest tax subsidy – flow to owners of the biggest and most expensive houses. Therefore, the capital gains exemption is regressive and doesn’t pass one of the most basic tests of tax fairness. The people with the biggest income stand to realize the biggest gain. The federally-appointed Carter tax commission of 1972 urged that fairness should be a cornerstone of the tax system, and that all income should be treated equally for tax purposes. But the federal government of the day watered down many of the Carter recommendations, and tax changes since then have entrenched a sense of unfairness in the tax system, especially when it comes to housing.
By 2005, the real median household income for owners across Canada was $55,800 – up 6% over the previous 15 years, according to Statistics Canada. That same year, the real median household income for renters was about half ($29,000) – and renter household income actually fell by 2% over the previous 15 years. In 2005, home owners received an annual tax subsidy of almost $7.2 billion. Federal spending on affordable housing programs was slightly more than $2 billion. Two years later, the total federal tax subsidy delivered to home owners had jumped by 61% to $11.6 billion, while the federal investment in affordable housing was stalled at $2 billion (not including the one-time-only allocation of $1.4 billion in affordable housing authorized by Parliament in 2005). Renters not only have much lower incomes than owners, but dramatically lower net worth. The median (middle) net worth for renters in Canada in 2005 was $14,000, while the median net worth for owner households was a whopping $327,000.
The bottom line: Renter households have lower incomes, and less wealth, than owner households, yet they get only a fraction of the federal subsidies that owners receive. Federal subsidies to higher-income home owners, delivered through the tax system, are many times more rich than the federal investment in affordable housing for lower-income households.
About two-thirds of Canadians are owners, and one-third are renters.