A recent Globe and Mail article highlighted a proposal aimed at making it more difficult for investors to buy residential real estate. The report’s author, John Pasalis, a real estate analyst, has long expressed concern about housing affordability and the role that investors – particularly in the Toronto housing market – may play in exacerbating the issue.
To address this, Pasalis recommends that the federal government implement three key measures to curb investor activity:
- Require a minimum down payment of 35 per cent on investment properties;
- Tax capital gains on investment properties as regular income; and
- Eliminate mortgage interest deductibility for investors.
Much of the available data on investment activity in the housing market conflates a range of scenarios: buying a vacation property; purchasing a second home for personal use or to be occupied by a family member; buying a condominium or home to rent out; short-term rentals of a primary residence; fix and flip projects; rental units in an owner-occupied fourplex; or renting a basement suite or laneway home.
If the goal is to curb investor activity, it’s important to first identify which types of activity are of concern. The real issue appears to be speculation. The federal government has already introduced an anti-flipping tax on residential properties that are held for less than 12 months, and BC has gone further, requiring a two-year holding period to avoid the tax.
Starting January 1, 2023, any gain from the sale or disposition of a housing unit, or a right to acquire one, that you owned or held for less than 365 consecutive days is treated as business income rather than a capital gain, unless the transaction qualifies for a life-event exemption. If you flip a property at a loss, that loss is not deductible.
British Columbia has introduced a separate flipping tax, effective January 1, 2025, that applies to property held for less than 730 days. This includes presale contracts and assignments.
These taxes should help curb speculative flipping activity without discouraging investors who provide much-needed capital to support the rental supply.
In an affordability crisis, limiting speculation is essential—but we should be careful not to deter investors who play a vital role in expanding the rental stock. Without their participation, construction activity in the condominium market will become even more challenging.
Independent Opinion
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