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You're no longer middle-class if you own a cottage or investment property – The Globe and Mail

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Some in cottage country have been singing the blues since Ottawa proposed changes to capital gains taxation as part of the recent federal budget. Their tears reveal they don’t yet recognize how class dynamics have changed as a result of the damage done to our housing system.

Owning a cottage or investment property is no longer a middle-class reality. It’s a sign of affluence in a country where rent and home ownership are so much more expensive for younger residents today than when baby boomers were young.

More, not less, taxation of second properties is required to protect younger Canadians in the housing market, fill the revenue hole left by governments that did not plan adequately for boomers’ retirement, and spur productivity.

I genuinely sympathize when people struggle to ensure that a cherished cottage remains in the family, and I appreciate that taxation plays a role in complicating their planning.

But anyone struggling with that challenge has to sympathize even more with the many hard-working younger folks and newcomers who struggle to afford rent, let alone home ownership of any kind.

Paying taxes on a half-million-dollar capital gain from a cottage or an investment property is a good problem to have. I could line up millions of younger Canadians who would jump at the opportunity to trade their housing woes for that privilege.

Plus, mom-and-pop investors have been harming housing affordability. They contribute to bidding-up average home prices, and they’re implicated in rising rents charged to younger folks increasingly locked out of home ownership. Purpose-built rental construction is a more efficient way to scale up the supply of rental units.

Social Capital Partners, a non-profit focused on broadening access to ownership, rightly calls out this problem, lamenting the role that domestic, small-scale investors have played in crowding-out first-time buyers. They remind us that mom-and-pop investors in residential real estate now outnumber corporate and foreign investors combined.

Canada could “make upward of a million [homes] available over the next decade” for aspiring owners, SCP observes, if we reduce the activity of investors in the housing system to levels that resemble their share of purchases 10 years ago – “all with no additional shovels.”

To advance this goal, they recommend “taxing capital gains on investment property at the same rate as income.” In other words, they propose 100 per cent of capital gains earned from properties other than principal residences should be subject to income taxation – not just the 50 to 66 per cent required by the 2024 budget.

I like this recommendation for three reasons.

First, it’s hard for younger Canadians to compete with mom-and-pop investors in the housing market. Whereas young folks only bring their earnings to bid on a home, investors can also tap into profits they’ve gained from their housing assets. Since those profits are sheltered from taxation by comparison with labour earnings, the SCP proposal would reduce the tax advantage that helps investors outbid first-time buyers.

Second, mom-and-pop investors tend to be older, which means they are especially likely to be in the generations for which federal and provincial spending is growing most rapidly in government budgets. The SCP proposal would raise additional revenue disproportionately from affluent members of the generations that are benefitting from new spending that is driving government deficits.

Third, the SCP tax change would stimulate productivity. Real estate, rental and leasing have represented the largest share of Canada’s GDP for years, but relatively little employment. This pattern is a root cause of the nations’ poor performance when it comes to economic growth per capita.

When Canadians use their investments to bid up the price of existing homes (which is the vast majority of what is on sale), the investments do relatively little to increase productivity. Instead, they seek wealth windfalls at the expense of inflating the major cost of living for those who are not yet home owners.

By discouraging speculation in housing that is not purpose-built rental, the SCP proposal would incentivize investment in manufacturing, the green economy and other industries that have a better track record at improving productivity than investment in most real estate.

We may lament that owning a second property is no longer a marker of the middle-class. But we need Ottawa to recalibrate the tax code for the present, not the past. Further taxation of second properties and mom-and-pop investors is necessary to promote fairness for every generation.

Dr. Paul Kershaw is a policy professor at UBC and founder of Generation Squeeze, Canada’s leading voice for generational fairness. You can follow Gen Squeeze on X, Facebook and subscribe to Paul’s Hard Truths podcast.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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