The question resurfaces from time to time, and it has emerged again recently in the context of the real estate boom: should the capital gain realized on the sale of a principal residence be taxed?
Currently, this profit is tax-exempt, and I agree that it should remain so. However... Can we consider a limit?
There are two records in the Centris system that refer to two real estate transactions involving the same property, four years apart. We're talking about an estate, my friends: a century-old house with about thirty rooms set on a wooded lot of more than 150,000 square feet, in the heart of the Mont-Saint-Bruno national park, on the shores of a body of water with an evocative name, Lac Seigneurial.
This property was acquired in 2017 for $3 million. It was resold last June for $6.8 million. The deed has not yet been posted to the JLR database, but a broker of my acquaintance confirms the information.
"Looking at the photos, I think they did some major renovations between the two transactions," the broker observes.
So, let's say the work cost $1.5 million, I'm throwing out a number of the same, so half the purchase price. Well, the owners still end up with a $2.3 million profit in just four years.
Tax free. The flip of a lifetime!
It's enough to make you cringe.
Small and large profits
It is true that even the "small owner" of a semi-detached property can make unexpected gains these days without being hit by the taxman, but are his profits really worth it knowing that he has to relocate in a heated real estate market?
If he sells in a seller's market, he becomes either a buyer or a renter. Taxing him on the appreciation would be so detrimental to him that he would think twice about leaving his home and moving elsewhere.
For a millionaire who makes millions more on the resale of a mansion, it's a different matter. In this league, one can choose to live more "modestly" to maintain one's profit, and by "modestly" I mean moving from a home with four garages to one with three. The tax does not reduce the ability to relocate, nor does it reduce the comfort or size of the pool.
Also, real estate constitutes for these people in means a fraction of their wealth, contrary to the ordinary world whose house often represents the main part of the financial assets.
Imposing a limit
As the Journal recently noted in an article about an obscure influencer who bought herself a palace at a cost of 5 million dollars, large real estate transactions are on the rise. The conditions are right for speculation, it smells like a flip.
The time to review the tax system in this sector seems opportune, especially since the State will need revenues. The solutions are known, they have been talked about for years.
When an entrepreneur sells his business at a profit, he is entitled to a tax exemption on the capital gain. However, this exemption is capped at $880,000, an amount that is indexed each year.
A similar limit could be applied to the tax exemption on the principal residence. Let's say $500,000. That's a lot of money, and you could consider a higher or lower amount depending on the length of time you hold the property. The longer you hold an asset, the more the capital gain on the sale of that asset is eaten up by inflation.
Another option would be to cap the amount of exemption that each person can enjoy during their lifetime, regardless of the number of real estate transactions.
In 2015, the Commission d'examen sur la fiscalité québécoise proposed such a solution to tax windfall gains: a lifetime limit of $1 million, indexed.
If such a limit existed, the owners of the Lac Seigneurial estate would have easily breached it, with a tax assessment to follow.
Source : Article by Daniel Germain on the website tvanouvelles.ca on the 13 August of 2021
Link : https://www.tvanouvelles.ca/2021/08/13/gain-en-capital-et-vente-de-maison
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