Young Canadians Say Taxes Impacting Homebuying Plans

Are taxes impacting homebuying activity in Canada? It’s true, according to a new RE/MAX survey. More young Canadians say that taxes are negatively impacting their purchase decisions, with polling data revealing that 40 per cent of Generation Zers and 35 per cent of millennials saying land transfer tax, or LTT, has influenced their journey to home ownership. By comparison, around one-quarter of Generation Xers (26 per cent) and Baby Boomers (21 per cent) reported that these taxes are impacting homebuying plans.

The land transfer tax is a municipal or provincial penalty calculated as a percentage of the residential property’s estimated value. Introduced throughout the country in the 1970s, it has transformed into a massive revenue generator, particularly for cash-strapped governments. However, LTTs can often be a significant expense for prospective homeowners, although it will depend on where you live.

In Nova Scotia, it is 1.5 per cent of the price. However, in Ontario, it can be upward of five per cent (in Toronto, homebuyers have to fork over both a municipal and provincial land transfer tax).

As a result, research has shown that younger households are waving goodbye to specific cities or even provinces to buy a property, whether a single-family home or a condominium unit.

Unsurprisingly, Alberta, which does not have a land transfer tax, was one of the provinces to experience a significant uptick in net interprovincial migration last year. In the first three quarters of 2023, nearly 50,000 people relocated to the Western province.

Cash-rich buyers from other provinces, like British Columbia and Ontario, have realized that the sale of their homes in Toronto or Vancouver could fund a significant portion of their home purchase in Alberta or even Atlantic Canada, says Christopher Alexander, the president of RE/MAX Canada.

“And for first-time buyers, it’s an opportunity to get into the market at an affordable price point and gain equity, as opposed to paying down someone else’s mortgage by renting,” he said in the report.

At a time when the average Canadian family dedicates nearly half of its income to taxes, higher tax bills, from property levies to the LTT, might diminish the chances of acquiring a residential property.

Home Price Comparisons

Of course, the higher the home price, the greater the tax implications for all parties involved. But what are the home prices like in Alberta compared to other places?

According to the Alberta Real Estate Association (AREA), the total residential average price is about $482,000. In British Columbia, the average sales price of a home sold in January was nearly $958,000. In the Ontario housing market, the average resale price of residential homes sold across the province was $873,000.

Ultimately, not only are homebuyers witnessing significant savings, but the tax situation is vastly different among these regions.

“In addition to affordable housing values and extensive job opportunities, Alberta is well known for its position on taxation, with no provincial sales tax and zero land transfer tax on residential real estate,” Alexander added.

Alexander added that the present tax situation will continue to diminish the Canadian dream of home ownership.

Alexander added that the present tax situation will continue to diminish the Canadian dream of home ownership.

“Taxation is contributing to the demise of the Canadian dream, with home ownership across the country falling from peak levels reported in 2011, and it will continue to decline unless there is some intervention. A greater supply of affordable housing in major centres will have a sizeable impact on keeping the dream alive. However, if we don’t heed the call, we risk continued out-migration of our youth.”

Higher Taxes Coming?

A treasure trove of polling data suggests that many Canadians feel their taxes are too high. This past summer, a Montreal Economic Institute (MEI) poll found that two-thirds of Canadians think income taxes are too high. Despite these concerns, a recent report showed that the latest federal fiscal update will potentially add to these growing concerns.

The Canadian Taxpayers Federation (CTF) concluded that nearly every Canadian will pay higher federal taxes in 2024. The federal hikes will affect many components of everyday life in Canada: carbon and payroll taxes, a second Canada Pension Plan tax, and increases in the maximum pensionable and insurable earnings.

According to the latest Parliamentary Budget Officer (PBO) report, the federal government will face gaping budget holes over the next several years, so officials will need to find more revenue-generating tools.

Although families are trying to flee jurisdictions that maintain high tax rates, it will prove to be challenging for households to escape the situation altogether. Still, for market observers, it could be understandable why so many Canadians are choosing Alberta as their new home.