Canada’s housing market has remained frozen throughout most of 2025, with many buyers holding off on entering the fray and plenty of sellers still unwilling to slash their asking price despite falling values.
But there’s another factor preventing many would-be sellers from listing their properties, according to Don Kottick, president of real estate giant RE/MAX Canada: the national capital gains tax, a measure he views as excessive and one that’s keeping quality inventory off the market.
In March, prime minister Mark Carney cancelled a proposed hike in Canada’s capital gains inclusion rate, using his opening weeks in office to ax an unpopular measure planned by his predecessor Justin Trudeau.
Currently, Canadians do not have to pay tax on the sale of a home if it was their principal residence for every year they owned it, but might not benefit from that exemption if there was a period when they didn’t live mainly in that property.
When selling another property, 50% of capital gains are taxable at a rate that depends on the seller’s income. However, Kottick said that rule is a punitive one that leads many property owners to conclude it makes no sense to sell a home.
“If the government wants to see more inventory come on the market, they need to stop the high level of capital gains tax that they’re charging,” he told Canadian Mortgage Professional. “People aren’t going to sell places if they’re paying high capital gains taxes on their investments.
“If you want to see more inventory come in the market, then look at the capital gains as an incentive to reduce so that people will bring their investments onto the market. I think you’d be surprised how much inventory would flow on if we reduced our capital gains taxes. So that’s one area that the government doesn’t talk about – but I think that’s an area that should be looked at.”
Long-term supply crisis shows no sign of easing
The pendulum in Canada’s housing market has recently swung firmly in favour of buyers, with demand plunging compared with the amount of supply currently available.
But experts including Canada Mortgage and Housing Corporation (CMHC) economists have flagged that the country still faces a long-term housing supply shortage, particularly as construction and housing starts plummet amid high-profile condo crises in Toronto and Vancouver.
Kottick said the capital gains tax in its current form would only worsen that supply shortage in the years ahead, and urged the Canadian government not to use homeowners’ equity as a way to raise taxes further.
“I think the general consensus we’re finding is Canadians still want to own homes. Obviously because of the high taxes that we pay in Canada, there aren’t too many ways that we can accumulate wealth in real estate,” he said.
“It continues to be part of our culture: it’s who we are, and Canadians want to own homes. And as long as the government doesn’t play with the equity in our homes, I think it will continue to be something that people aspire to and continue to go as an asset class for accumulating wealth.”
‘It is what it is’: Trade war continues to impact market
Cancelling the proposed hike – which would have increased the capital gains tax rate to two-thirds for businesses, individuals, trusts, and corporations, Carney appeared to acknowledge the detrimental effect it would have on Canada’s homebuilding outlook.
“Canada is a country of builders,” he said in a statement. “Cancelling the hike in capital gains tax will catalyze investment across our communities and incentivize builders, innovators and entrepreneurs to grow their businesses in Canada, creating more higher-paying jobs.”
Still, another huge challenge for the housing market has also emerged this year: the US-Canada trade war, launched by US president Donald Trump shortly after taking office.
That continuing impasse has weighed against homebuying activity across the country, and Kottick expressed disappointment that a resolution still hasn’t been reached.
“It is kind of disheartening that they’re not taking these discussions seriously and looking to a resolution like other countries have,” he said. “It is what it is.”
CMP
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