Toronto’s municipal land transfer tax (LTT) could be increasing shortly, as city council recently passed a motion instructing the city manager, the chief financial officer, and treasurer to generate an estimate of the revenue that the city would obtain, as well as a study of the economic impact of an (unspecified) increase in the tax. This would apply for homes valued at or over $2 million, $3 million and $4 million, respectively.
This would be counterproductive, authors Benjamin Dachis, Bev Dhalby, and Jack Mintz write in a recent C.D. Howe report, The Economic Cost of Toronto’s Land Transfer Tax.
They find any move to increase the tax on high-end homes would have a high economic cost because the LTT discourages people from moving to more favourable locations or housing when they can do so.
Any increase in revenue for Toronto would come at the expense of the province overall, reducing Ontario’s LTT revenues by more than the city took in.
“We argue that the top LTT rate should not be increased, but rather reduced because it is a costly source of revenue to the wider economy. Indeed, the top LTT rate should be dramatically reduced, as even reducing the combined provincial-municipal top LTT rate from five to four percent would still leave the LTT as perhaps the most economically costly major revenue source in the province.”
The fact that the LTT is a volatile source of tax revenues, increasing sharply during a housing boom and plunging in a crash, and that it imposes a larger burden on younger generations and immigrants to the city, as well as on households that move more frequently because of changes in the location of employment, make it hard to justify, write the authors.
A better alternative is for the city to increase property taxes instead, the authors recommend.
