For quite a while I have been a major proponent for Canada re-evaluating its policy on over taxation. I would still like for Canada to re-evaluate the necessity of dual taxation -paying 30-40% income tax and then be taxed 14% sales tax on the funds that have already been filtered by the government coffers. One of my main sticking points has been the lack of a tax break on mortgage interest. This is only half true as there are ways to be able to right off the interest -such as the Smith Manoeuvre-, which dictates that if the loan is for the purpose of investment then the interest is tax deductible. This is an interesting concept and one that may be worth looking into if you are interested in some taxation savings with corresponding risk. The problem that I have with the general taxation situation is that the status quo -without such loopholes- eliminates any tax break for the hard working middle class. The real status quo.

Canada has a history of allowing loop holes for the rich and handy out freebies (social housing etc) for the lower class, but completely ignoring the middle class which foot the largest portion of the personal income tax bill. So what is the answer? The socialists would say that the answer is to close the loophole on the rich, but that is a naive and ill thought out option. It is simply perpetuating the problem of taxing (read: punishing) those that have attained a degree of success -frequently through hard work. There are several other ideas that may work, the green party suggests that you pay what you burn, not what you earn philosophy, which is wonderful in theory but may be more difficult in practice. Another idea would be to look at some countries that have created a tax break on interest in order to promote intelligent spending such as owning ones on home. The most recent country to employ this sort of technique is the United States in which the interest on mortgages on a primary residence is tax deductible. This has been one of the contributors to the current sub-prime disaster.

Now there are several key factors at play in the sub-prime mortgage catastrophe such as the questionable lending practices, over borrowing, and tax breaks for large interest payments. This has caused me to re-think my personal ideas on writing off mortgage interest; the problem stems from the fact that the situation has turned on its head and is currently rewarding those that have over extended themselves. This falls into a similar category to people having more children to increase their welfare payments, it only perpetuates the problem.

To me a more realistic balance need to be found where the interest from a mortgage should be applicable to a tax credit up to a certain percentage of a persons salary. That is to say that you should be able to write up to 75-100% of the interest of a reasonable sized mortgage, for instance I would consider a reasonable sized mortgage to be a mortgage where the payments fall under 25% of your yearly take home -I think the Canadian banks actually use 40% of your salary for your maximum debt co-efficient- then the interest on the mortgage payments which fall under 25% percent of your yearly salary should be applicable the the tax credit. This would encourage people to make wise decisions when it comes to borrowing and investment. It would also ease the burden on those attempting to the real-estate world. It would also remove any sort of tax break for the dangerous real-estate speculation market (another huge contributor to the Subprime situation).

You could say that the current situation is people being protected from themselves due to the very strict taxation laws in Canada. While this has avoided a situation similar to that in the US mortgage market, there is also many other factors in play, such as Canadians decidedly more conservative lending practices. There are less mortgages that stretch beyond the borrowers means, there are less variable rate mortgages and almost no interest only mortgages. For this intelligent behavior I would like to see a well deserved and similarly intelligent tax break.

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