32 years ago today, I submitted my master’s thesis in taxation under the title The tax system facing the problem of access to property. At that time, inflation hovered around 5%, interest rates reached 10% and access to property became increasingly difficult for young people of my generation.
I had nevertheless managed to buy a property in Montreal. This one is currently for sale and I checked if a young person today would obtain the mortgage financing to acquire it. Answer ? No. And this is far from an isolated case.
With a median income of $44,000 in 2020 (Statistics Canada) – or approximately $50,000 in 2023 – Quebecers aged 25 to 34 can be granted a maximum mortgage loan of $210,000. We are far from $415,000 and $723,000, the average price of single-family homes in Quebec and Montreal respectively (Centris data, cumulative for the last four quarters).
Even though house prices in Canada have already fallen from their 2022 peak, this drop is only offsetting skyrocketing mortgage rates, so net affordability hasn’t really improved over the past year. the last year. True, prices are likely to fall further, but experts predict that they will remain above the pre-pandemic level.
In its 2022 budget, the federal government introduced the tax-free savings account for the purchase of a first property (TFSA), the first contributions of which will begin on 1er April 2023. Future buyers will therefore be able to take advantage of four main tax breaks:
1. CELIAPP – 2023: the first buyer can contribute up to $8,000 per year, for a maximum of $40,000. These contributions are deductible from the taxpayer’s taxes, the return made is not taxable and the sum withdrawn, when acquiring the first property, will not be taxable either.
2. Tax credit for the purchase of a first home – 2009: the first buyer can receive up to $2,752.50 (federal and provincial) in tax refunds on the purchase of their first home.
3. Home Buyers’ Plan (RAP) – 1992: this allows you to borrow up to $35,000 from the RRSP to buy or build a property.
4. Principal Residence Exemption – 1972: it is a tax exemption on the gain made on the disposition of the principal residence.
Unfortunately, these tax breaks are not enough to help a middle-class youth buy a home.
Even if he succeeded in amassing the $40,000 allowed by the TFSA and if he HOPped the $35,000 allowed from his RRSP, the bank would still cap his mortgage at $210,000. I was talking about all this with Nicolas Allaire, director of mortgage development at the National Bank. He explained to me that, these days, a borrower who would have monthly payments of $750 (ex: car loan, student loan) must have an annual income of almost $125,000 to be granted a sufficient mortgage to buying a house for $415,000 (with a minimum down payment).
So still nothing to really help young middle class people and, even worse, they have to subsidize the houses that manage to buy those of their generation who earn higher incomes than them.
After 51 years of tax rules built by ear over decades, the time has come to reform and provide an effective tax system.
And this reflection must consider not only the needs of access to property, but also those concerning retirement because, for many Canadians, the two are intimately linked and the house often represents an important source of financing for their retirement.
To initiate this reform, we must first try to understand young people. For example, the federal government explained in its 2022 budget, when introducing the CELIAPP, that young people want the opportunity to buy property, just like their parents and grandparents did. But is this really what they want? The future owners belong to Generation Y, those who value the notion of flexibility, favor travel and leisure and perhaps prefer renting to owning.
Among the objectives of this reform, simplification and tax justice should take priority.
People struggle to disentangle this variety of complex and sometimes conflicting plans to encourage retirement savings and home ownership (RRSP, HBP, TFSA, TFSA, etc.).
In addition, this multitude of plans entails preferential tax treatment for the wealthiest who can benefit, in 2023, from tax deductions totaling nearly $38,780 for contributions to RRSPs and TFSAs, and a contribution of $6,500 to the TFSA, while young people who earn an annual income of $50,000 obviously cannot afford such investments.
One idea to consider might be to offer a single plan that combines ownership and retirement. Basically, a property and retirement savings plan (REPER) would allow the taxpayer to build up a fund whose accumulated sums could be used either as an annuity at the time of retirement, or to give a down payment to the purchase of property or to make mortgage payments.
Whatever the outcome of this reform, let us have the courage to abandon our old preconceived ideas and our archaic systems and offer our young people effective tax tools adapted to their needs.