The Home Equity Tax: Is it coming and what’s the potential impact for Canadian Real Estate.

By Reuven Gorsht, Co-Founder & CEO, Deeded, Updated Jan 15, 2025

‍

As a business leader and entrepreneur, I've seen my fair share of well-intentioned policies that missed the mark. The latest proposal floating around Ottawa - a potential home equity tax - has me and likely every Canadian homeowner concerned. Let's unpack this idea and explore what it could mean for homeowners and the broader Canadian economy.

First, what is a home equity tax? Simply put, it's a proposed levy on the increased value of your home. The idea is to tax the "unearned" wealth accumulation from rising property values. There hasn’t been anything officially published by the liberal government, but there sure are some rumblings and groundwork being done.

Updated Context: The Home Equity Tax Debate in 2025

As we step into 2025, discussions around a potential home equity tax have resurfaced, gaining attention from both policymakers and Canadians alike.

While no official announcements have been made by the federal government, proposals continue to evolve, fueled by think tanks like Generation Squeeze, which advocate for "generational fairness."

These renewed discussions come at a time when housing affordability remains a crisis in Canada, with the government introducing several tax measures aimed at addressing housing challenges. For example, the Canada Revenue Agency (CRA) has rolled out initiatives like the Home Buyers' Plan, the First Home Savings Account, and incentives for home renovations and purpose-built rental housing, as outlined in their recent update.

While these measures aim to provide some relief, the potential of a home equity tax raises significant concerns about its broader implications for homeowners and the Canadian economy.

Recent Proposals and Public Sentiment

In 2025, the home equity tax proposal has evolved to focus on a "modest surtax" on homes valued over $1 million, affecting approximately 12% of homeowners. The argument is that this tax could address housing inequities and generate revenue to fund affordable housing initiatives. However, many remain skeptical about its feasibility and fairness.

Critics highlight key issues:

1. Existing Tax Burden: Canadians already pay a variety of taxes on homeownership, including municipal property taxes, GST/HST, and capital gains on non-primary residences. Adding another layer of taxation could overwhelm homeowners.
2. Market Dynamics: Taxing high-value homes may not necessarily translate into affordability. Without significant increases in housing supply, basic economics suggest prices will remain high.
3. Ethical Questions: Targeting older homeowners who have diligently saved and paid off mortgages could be seen as penalizing long-term financial prudence.

While the intention of a home equity tax may be positive, we have to ask the question: "Is there a better way to make housing more affordable?"

For example, Pierre Poilivre has suggested various tactics and policies to tackle housing affordability without a home equity tax. You can read more about Poilivre's housing plan here.

New Tax Incentives and Housing Initiatives

While the home equity tax remains speculative, several new housing-related tax incentives were introduced by the CRA to support Canadians in managing housing costs:

1. Home Buyers’ Plan (HBP): Enhanced withdrawal limits of up to $60,000 tax-free from RRSPs for first-time homebuyers, with extended repayment grace periods.
2. First Home Savings Account (FHSA): A tax-free savings tool with contributions of up to $8,000 annually and a lifetime limit of $40,000.
3. Home Accessibility and Multigenerational Home Renovation Tax Credits: Designed to support renovations for accessibility and multigenerational living, providing up to $7,500 in credits for eligible expenses.

These measures aim to alleviate housing costs for specific demographics but also underscore the complexity of addressing housing affordability in Canada.

Real-Life Impacts for Homeowners

Let me share a couple of stories that illustrate the potential impact:

Meet Sarah and Tom, a retired couple in their 70s living in Vancouver. They bought their modest home in the 1980s for $150,000. Today, it's worth $2 million. They live on a fixed income and have no plans to sell. A home equity tax could represent a massive hit on their retirement plans.

This story highlights key concerns:

1. Reduced retirement security: Many Canadians count on their home equity as a cornerstone of their retirement plan. A home equity tax could erode this safety net.
2. Disincentive for home improvements: Why invest in upgrading your property if a larger portion of the gains will be taxed?
3. Potential cash flow issues: A tax based on unrealized gains could force some to sell or borrow against their homes to pay the tax bill.
4. A principal residence is, for most Canadians, their largest asset and a wealth building vehicle for at least the last 20 some-odd years.  Taxing home equity will harms almost every Canadian homeowner.

Industry Implications of a Home Equity Tax

Real Estate and related services represent 40% of Canada’s gross domestic product.  Many jobs, from real estate services, banks, trades, and retailers, rely on a healthy housing environment to make a living.  A home equity tax can have severe implications for the real estate industry and broader economy:

1. Market slowdown: The added cost could cool demand, particularly in hot markets.
2. Shift in investment patterns: Real estate might become less attractive, pushing capital to other sectors.
3. Administrative burden: Implementing and enforcing such a tax would be complex and costly.

The Future of Canadian Real Estate

Implementing a home equity tax could fundamentally reshape the Canadian real estate landscape. Our market is already in a significant correction pattern driven by high interest rates and a looming mortgage renewal crisis.

1. Changing homeownership patterns: We might see a shift towards renting, especially in urban centres. It already makes more sense to rent in some markets, given the interest rate environment. We're also seeing a rise in co-ownership as young Canadians team up to make home ownership a reality.
2. Regional disparities: Areas with rapidly appreciating home values could be disproportionately affected, potentially leading to demographic shifts.
3. Impact on foreign investment: Depending on how it's structured, a home equity tax could deter immigration and foreign buyers, reshaping our urban centres.

Consider the ripple effects: If homeownership becomes less attractive, how might this impact related industries like construction, home improvement, and mortgage lending? What about the psychological impact on Canadians who have long viewed homeownership as a key pillar of financial stability?

Broader Implications for the Housing Market in 2025

The Canadian real estate market continues to grapple with high interest rates, limited supply, and affordability challenges. A home equity tax could exacerbate these issues by:

1. Impacting Retirement Security: Older Canadians relying on home equity for retirement may face financial stress.
2. Creating Regional Disparities: Areas with high property values, such as Toronto and Vancouver, could be disproportionately affected.
3. Potential for Economic Slowdown: The real estate sector, a significant contributor to Canada’s GDP, could see reduced activity, impacting jobs in related industries.

Is There a Silver Lining to a Home Equity Tax?

‍

Could a home equity tax help address housing affordability? The concept certainly resonates with the current government who acknowledges that Canada is short 3.5 million homes and affordability is beyond a level of crisis.. But it's a delicate balance. We need solutions that don't punish success or discourage homeownership.

Instead of a blanket tax, what if we explored:

1. Targeted measures for speculative investing
2. Incentives for first-time homebuyers
3. Policies to increase housing supply and affordability

For example, what if we implemented a scaled tax that only kicked in above a certain threshold of appreciation, protecting modest gains while targeting speculative "flipping"?

The home equity tax debate highlights a crucial point: in our quest for solutions, we must consider long-term consequences and unintended ripple effects. It's our job to push for innovative thinking that addresses root causes, not just symptoms.

The future of Canadian real estate hangs in the balance. We’ve already seen nails in the coffin with capital gains increases, banning short-term rentals, and strict landlord protection rules.  Will we create a system that fosters sustainable growth and equitable access to housing, or will we inadvertently destroy the housing market further? The choices we make today will shape the homes and communities of tomorrow.

What are your thoughts on the home equity tax proposal? How would it impact your business or personal financial planning? Let's keep this important conversation going.