Is the Canadian First Time Home-Buyers Tax Credit Helping Stimulate the Housing Market?
January 19, 2010
Among all the government actions taken in Canada to alleviate last year’s real estate slump, the tax credit was one of those most highlighted. In comparison to the USA tax incentive plan, the Canadian scheme seems to come a poor second. However does anyone find it remotely amusing?
Let’s start by analyzing both the tax credits on the table. Based on a $5,000 deductible is the Tax Plan proposed by Canada’s Federal government. Using the deductible and multiplying it by the lowest income tax rate, for a property owner this will amount to less than $800 net if you haven’t owned a property within the past four years.
On the other hand, the American tax incentive can be as great as 10% of the real estate’s value, to a maximum of $8,000. There is one important difference – this sum is not deducted from the tax base (like ours), but deducted from the buyer’s income tax owing. The tax credit incentive is cashed back to the new property buyer if tax owed by them doesn’t top the $8,000. This tax credit is available to those who haven’t owned property in the three years prior to taking advantage of the tax incentive.
The American property market has entered a shaky but definite recovery due to these enormous tax credits, while in Canada the recovery of the property market is believed to be due to the interest rate cuts. The American plan reduced the pressure of finding a down payment for a property and paved the way for first time buyers to get on the property ladder. Although the answer is possibly more complicated, wouldn’t you think that Canada would look at the benefits of the US tax incentives a little closer?
What Canadians must ask themselves, is “do we want it”? While both Canada and the US have both been in recession there has been a marked dissimilarity in the result of it. While dropping prices, lost jobs and a flood of inventory drove many Americans right into short sales or foreclosures, the Canadian market rebounded within a few months, with any impact hitting investors and real estate agents more than normal homeowners.
Then we need to look at public funds and debts. Billions of dollars in lost tax revenue doesn’t help the already disturbing budget deficit when 1.5 million taxpayers are claiming this tax incentive.
To see the rest, please read our original article “Is the First Time Home-Buyers Tax Credit Really as Good as It Sounds?” Thank you.
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