BSH ResearchThe Prevalence of Low Income Tax Payments Among Owners of Expensive Homes in Vancouver and Toronto

The Prevalence of Low Income Tax Payments Among Owners of Expensive Homes in Vancouver and Toronto

An in-depth analysis of income tax payments among expensive home owners

This research aims to analyze the relationship between individual residential property value and homeowners’ income tax payments in Vancouver and Toronto. The study is motivated by suggestive evidence that owners of expensive properties in and around Vancouver pay relatively little tax, and also by recent Canadian policy reforms. Using data from the Canadian Housing Statistics Program (CHSP) and the US and Canadian censuses, researchers ask, “How much income tax is paid by non-corporate owners of residential properties at different quantiles of metropolitan home price distributions?”

What does income tax say about home owners and property value?

In 2018, the top 5% of homes in Greater Vancouver had a median value of $3.7 million, yet their owners paid median income taxes of only $15,800. Using Canadian Housing Statistics Program data, the authors explore the relationship between homeowners’ income taxes and property values. In metropolitan Toronto, the elasticity of income taxes paid by non-corporate owners with respect to property value is about 0.7—comparable to many U.S. cities. However, in metropolitan Vancouver, the elasticity ranges between 0.3 and 0.5, depending on whether calculated using medians or means, placing Vancouver near the bottom of U.S. metropolitan areas. These findings raise concerns about the progressivity of taxation in Vancouver. The evidence about foreign buyers’ impact on this weak relationship is mixed. Between 2011 and 2016, Vancouver showed a particularly weak link between income taxes and property values compared to other Canadian and U.S. metropolitan areas. A modest minimum income tax tied to property value could generate billions annually for both Vancouver and Toronto.

Project Lead(s):

Thomas Davidoff

Home Organization:

Toronto Metropolitan University

Other Participants:

Paul Boniface Akaabre, Craig Jones

Community Partner:

None

Funding Stream:

Other

Project Status:

Completed

Results

The study compares household incomes and the relationship between income tax and housing wealth in Greater Vancouver and the Greater Toronto Area (GTA). While both regions have similar pre-tax incomes, the GTA shows a stronger link between income tax paid and property values, comparable to US metropolitan areas.

In contrast, Greater Vancouver has a weaker connection between income tax and property values, suggesting many luxury homes are purchased with wealth not taxed in Canada.

This indicates a weakly progressive tax system in Vancouver. The data is mixed on whether foreign-buyer taxes would tighten the tax-property value link. The study suggests that implementing minimum income taxes tied to property value could significantly increase government revenue and tax progressivity.