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Why tinkering with the capital gains exemption is the nuclear option for housing market intervention – Financial Post



‘You think it’s hard to get a home now, imagine if they bring in a new tax on home equity. People will simply stay in their homes longer, maybe to the last parts of their lives’

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Canada’s housing market has finally gotten so crazy that it is prompting talk about something almost sacred to homeowners: the tax-free profits they realize when they sell their main residence.

To be clear: the federal government has not said it’s about to start tinkering with the principal residence exemption from capital gains tax. However, Canada’s housing market has gotten so hot that it is at least a topic of conversation again, showing just how intense the demand for residential real estate has gotten.

That flurry of buying and selling has been driven by factors such as rock-bottom interest rates and a COVID-19-related desire for more space, which are also prompting some buyers to move more quickly for fear of missing out on a chance to own a home. Soaring home prices are increasing speculation that policymakers will step in at some point to try to calm things down, as they have in the past.


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“You’re seeing a reinvigorated debate on some of these sort of demand-side options,” said Jason Mercer, chief market analyst at the Toronto Regional Real Estate Board.

The preferred route TRREB and others in the real-estate industry would like policymakers to pursue is tackling the other side of the equation, by trying to boost limited housing supply that has also contributed to rising prices. That will take time, though, and the recent surge in home prices could translate into increased pressure for governments or regulators to intervene.

  1. Rather than buying stocks, invest in something a little more tangible such as real estate or an investment property.

    These tax changes could open up more options for real estate investors, homeowners and renters of all ages

  2. Investment is critical in generating new housing supply and for maintaining the structural integrity of existing housing stock.

    Why capital gains tax on principal residences is still a bad idea

Royal Bank of Canada economist Robert Hogue wrote this week that policymakers should do something about “overheating” housing markets, because they present a risk to the economy, suck capital away from more productive purposes and can worsen inequality. One thing Hogue suggested was that governments should re-examine the support they provide for home ownership.

“Policymakers should put everything on the table, including sacred cows like the principal residence exemption from capital gains tax,” Hogue wrote. “These considerations will be complex, controversial and no doubt fraught with unintended side-effects. Yet this support was largely designed during times when interest rates were much higher, and in some cases to counter the effect of high rates.”


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A recent International Monetary Fund staff report on Canada didn’t mention the principal residence exemption by name, but it did reiterate the importance of policies that focus on “removing distortions” from housing markets.

“Even well-intended measures — like direct subsidies and tax deductions — can have perverse effects on housing affordability by favoring those that can already afford to buy a house at the long-term disadvantage of those that cannot, thus worsening existing inequalities,” the IMF report said.

In the United States, a couple can have capital gains of up to US$500,000 from the sale of their home excluded from their taxable income. Yet for Canadian policymakers, even just thinking about thinking about touching the capital gains tax exemption could leave them with few allies in the real estate industry.

“It will be an atom bomb on the retirement savings of Canada’s vast middle class,” said Tim Hudak, chief executive of the Ontario Real Estate Association. “Secondly, you think it’s hard to get a home now, imagine if they bring in a new tax on home equity. People will simply stay in their homes longer, maybe to the last parts of their lives, and that means that starter homes and move-up homes won’t come on the market.”

Even well-intended measures can have perverse effects on housing affordability

The exemption is one of the modern engines of Canadian homeownership and retirement planning, which may keep policymakers steering clear of messing with it in any fashion.

“Every single person says that at the end of the day, if I don’t stay in my own home, I can realize the entire fair market value on a tax-free basis, and then use that money to help fund or supplement my retirement,” said Jamie Golombek, a Financial Post writer and managing director, tax and estate planning with CIBC Private Wealth Management in Toronto.


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A lot of people are also counting on that nest egg to continue to grow.

Consumer expectations about increasing house prices strengthened recently to the highest level ever seen in the history of a survey conducted for Mortgage Professionals Canada, an industry association representing brokerages, lenders and others.

“Even on the heels of a 15 per cent year-over-year growth, more people than ever have told us that they anticipate prices will go up,” said Paul Taylor, president and chief executive of Mortgage Professionals Canada. “And that is a bit of a speculative warning sign, if you like.”

Taylor also said that measures aimed at curbing housing demand are “really blunt instruments,” for which he and MPC are not advocating.

If measures such as capital gains tax on principal residences is being considered, there needs to be a “trade off” with that, he said, along the lines of, perhaps, a capital gains tax exemption for other types of investments.

“Because in and of itself, you’re not going to encourage people to put their money somewhere else,” Taylor said. “People still are going to want to buy a house.”

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World Bank sees ‘significant’ inflation risk from high energy prices



 Energy Prices are expected to inch up in 2022 after surging more than 80% in 2021, fueling significant near-term risks to global inflation in many developing countries, the World Bank said in its latest Commodity Markets Outlook on Thursday.

The multilateral development bank said energy prices should start to decline in the second half of 2022 as supply constraints ease, with non-energy prices such as agriculture and metals also expected to ease after strong gains in 2021.

“The surge in energy prices poses significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries,” said Ayhan Kose, chief economist and director of the World Bank’s Prospects Group, which produces the Outlook report.

“The sharp rebound in commodity prices is turning out to be more pronounced than previously projected. Recent volatility in prices may complicate policy choices as countries recover from last year’s global recession.”

The International Monetary Fund, in a separate blog, said it expected energy prices to revert to “more normal levels” early next year when heating demand ebbs and supplies adjust. But it warned that uncertainty remained high and small demand shocks could trigger fresh price spikes.

The World Bank noted that some commodity prices rose to or exceeded levels in 2021 not seen since a spike a decade earlier.

Natural gas and coal prices, for instance, reached record highs amid supply constraints and rebounding demand for electricity, although they are expected to decline in 2022 as demand eases and supply improves, the bank said.

It warned that further price spikes could occur in the near-term given current low inventories and persistent supply bottlenecks. Other risk factors included extreme weather events, the uneven COVID-19 recovery and the threat of more outbreaks, along with supply-chain disruptions and environmental policies.

Higher food prices were also driving up food-price inflation and raising questions about food security in several developing countries, it said.

The bank projected crude oil prices would reach $74/bbl in 2022, buoyed by strengthening demand from a projected $70/bbl in 2021, before easing to $65/bbl in 2023.

The use of crude oil as a substitute for natural gas presented a major upside risk to the demand outlook, although higher energy prices may start to weigh on global growth.

The bank forecast a 5% drop in metals prices in 2022 after a 48% increase in 2021. It said agricultural prices were expected to decline modestly next year after jumping 22% this year.

It warned that changing weather patterns due to climate change also posed a growing risk to energy markets, potentially affecting both demand and supply.

It said countries could benefit by accelerating installation of renewable energy sources and by cutting their dependency on fossil fuels.

(Reporting by Andrea Shalal; editing by Diane Craft)

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U.S. FAA seeks new minimum rest periods for flight attendants between shifts



The Federal Aviation Administration (FAA) is proposing to require flight attendants receive at least 10 hours of rest time between shifts after Congress had directed the action in 2018, according to a document released on Thursday.

Airlines for America, a trade group representing major carriers including American Airlines, Delta Air Lines, United Airlines and others, had previously estimated the rule would cost its members $786 million over 10 years for the 66% of U.S. flight attendants its members employ, resulting from things like unpaid idle time away from home and schedule disruptions.

Aviation unions told the FAA the majority of U.S. flight attendants typically do receive 10 hours of rest from airlines but urged the rule’s quick adoption for safety and security reasons.

Under existing rules, flight attendants get at least 9 hours of rest time but it can be as little as 8 hours in certain circumstances.

“Flight attendants serve hundreds of millions of passengers on close to 10 million flights annually in the United States,” the FAA said, adding that they “perform safety and security functions while on duty in addition to serving customers.”

It cited reports about the “potential for fatigue to be associated with poor performance of safety and security related tasks,” including in 2017, when a flight attendant reported almost causing the gate agent to deploy an emergency exit slide, which was attributed to fatigue and other issues.

The FAA estimated the regulation could prompt the industry to hire another 1,042 flight attendants and cost $118 million annually. If hiring assumptions were cut in half, it said, that would cut estimated costs by over 30%.

After the FAA published an advance notice of the planned rules in 2019, Delta announce it would mandate the 10-hour rest requirement by February 2020.

FAA Administrator Steve Dickson is testifying at a U.S. House Transportation subcommittee hearing on Thursday.

House Transportation Committee chairman Peter DeFazio said on Wednesday that it was “unacceptable” to delay the FAA adopting the flight attendant rest rule and mandating secondary flight deck barriers to better protect the cockpits on all newly manufactured airliners.

Attorneys at the FAA “need a little poke” to move faster on rules when ordered by Congress, DeFazio said on Thursday at the hearing. “Do not screw around with it for three years… you just do it.”

Sara Nelson, president of the Association of Flight Attendants representing 50,000 workers at 17 airlines, said the rule was critical.

“Flight attendant fatigue is real. COVID has only exacerbated the safety gap with long duty days, short night, and combative conditions on planes,” she said. “Congress mandated 10 hours irreducible rest in October 2018, but the prior administration put the rule on a process to kill it.”

During the pandemic, flight attendants have dealt with records numbers of disruptive, occasionally violent passenger incidents, with the FAA citing 4,837 unruly passenger reports, including 3,511 for refusing to wear a mask since Jan. 1.

The FAA proposes to make the new flight attendant rest rules final 30 days after it publishes its final rules.

(Reporting by David Shepardson; editing by Jason Neely and Bill Berkrot)

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Bitcoin price hits all-time high, one day after U.S. ETF debut – Global News



Bitcoin surpassed its all-time record high on Wednesday, one day after the first U.S. bitcoin futures-based exchange-traded fund (ETF) made its debut on the New York Stock Exchange.

The world’s leading cryptocurrency was up 3.30 per cent, trading at US$66,364.72, after reaching a record of US$67,016.50, topping the US$64,895.22 hit on April 14 this year.

Read more:
Bitcoin price nears all-time high as U.S. ETF makes trading debut

Tuesday was the first day of trading for the ProShares Bitcoin Strategy ETF — a development market participants say is likely to drive investment into the digital asset.

The ETF closed up 2.59 per cent at US$41.94 from its opening price of US$40.88 on Tuesday and continued its ascent on Wednesday, last up 3.76 per cent at US$43.52.

The Valkyrie Bitcoin Strategy ETF, expected to debut on the Nasdaq Wednesday, appeared to be delayed after its prospectus was amended in a filing with the Securities and Exchange Commission. A person familiar with the matter said the Nasdaq expects the ETF to launch on Thursday, but that has not been confirmed yet.

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Trading appeared to be dominated by smaller investors and high-frequency trading firms, analysts said, noting the absence of large block trades indicated that institutions were likely staying on the sidelines.

James Quinn, managing partner at Q9 Capital, a Hong Kong-based cryptocurrency private wealth manager, said the launch of the new product was “meaningful” for bitcoin.

Theoretically, any licensed brokerage firm in the United States which wants to take on this ETF can do so as easily as any other ETF, which “should make it available to a lot of folks,” said Quinn.

Read more:
Environmentalists see Bitcoin mining power plant as climate threat

While the ETF is based on bitcoin futures, Quinn said the trades and hedges underpinning the ETF means activity will flow into the spot market and the bitcoin price.

Crypto ETFs have launched this year in Canada and Europe amid surging interest in digital assets. VanEck is also among fund managers pursuing U.S.-listed ETF products, although Invesco on Monday dropped its plans for a futures-based ETF.

Ether, the world’s No. 2 cryptocurrency, was up 3.63 per cent on the day at US$4,018.75, after hitting a high of US$4,080, nearing its record high of US$4,380 reached on May 12.

© 2021 Reuters

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