The 2022 Federal Budget placed an emphasis on making Canadian housing more affordable for Canadians through the introduction of several measures and programs. Some measures provide tax incentives to individual Canadians, while others provide funding for broader-based programs. It should be noted that most of the Federal Budget measures referred to in this article at the time of writing, are proposed and have not received royal assent.
While many of the Budget initiatives will help with home-buying affordability, the high cost of housing, especially in larger urban markets, often require a full family approach. For younger families and couples who are first-home buyers, this can mean help from mom and/or dad.
First Home Savings Account (“FHSA”)
When this new registered account becomes available in 2023, Canadians will have another tax-advantage option to help fund the purchase of their first home, in addition to the Home Buyers’ Plan and the Tax-free Savings Account (“TFSA”).
Eligible contributions of up to $8,000 annually to a total of $40,000 over a lifetime would qualify for a tax deduction, similar to a Registered Retirement Savings Plan (“RRSP”). Growth in the FHSA would also be tax-free, similar to a TFSA, and withdrawals (for a qualifying home purchase) would be tax-free. This means the FHSA combines the most tax efficient features of both RRSPs and TFSAs, and be a very attractive option for many younger Canadians saving to purchase their first home. However, the FHSA and the Homebuyers Plan cannot be used together to purchase a first home.
For first-time homebuyers, there will be many funding options to consider. Be sure to seek advice from your financial professional to determine the best alternatives for you.
Ban on foreign investment in Canadian housing
For many years it has been recognized that affluent foreign buyers have been purchasing high-priced real estate in Canada’s largest cities, such as Vancouver and Toronto. These purchases are thought to have been a key driver of rising housing costs for Canadian homes, pricing many Canadians out of their home markets.
The budget proposed measures that would prohibit foreign enterprises, non-Canadian citizens and individuals that are not Canadian permanent residents from purchasing residential real estate for the next two years. The intention of this measure is to help cool the Canadian housing market by removing foreign buyers, making it possible for more Canadians to afford the purchase of a home.
Making property “flippers” pay their fair share
For real estate that is owned for less than 12 months, the government has introduced draft legislation to treat the sale profits as fully taxable income that would not benefit from capital gains tax treatment. Normally only 50% of a capital gain is taxable, therefore, this measure would effectively double the tax amount payable on the profits from certain sales of Canadian real estate. This treatment may also prevent a Canadian from using the principal residence exemption on the sale of their home.
Exemptions from this fully taxable treatment on sales of real estate owned less than 12 months, would be available for Canadians who sell their homes due to certain life events, such as death, the birth of a child, a new job or divorce.
The Canada Revenue Agency (“CRA”) has been reassessing property owners that move in and out of properties quickly over several years with this fully taxable income treatment. The new legislation will provide the CRA with stronger tools to challenge situations where there is a belief that a pattern of buying and quickly selling real estate is done in business-like fashion.
Individuals who are considering selling a Canadian property less the 12 months after the purchase date should evaluate their intentions and actions to minimize the potential tax consequences when reporting the profits.
Multigenerational Home Renovation Tax Credit
Beginning in 2023, to support multi-generational families living together, the government has proposed a one-time (Federal) refundable tax credit of 15%. The tax credit will assist families with qualified home-renovation expenses of up to $50,000, to support the construction of a fully self-contained suite in an existing home. The suite would include a separate entrance, kitchen, bathroom, and sleeping quarters, and would be built for a qualifying relative who is 65 years of age, or 18 years and over and qualifies for the Disability Tax Credit. Families who apply for this tax credit can save as much as $7,500.
This initiative has the potential to help bring multigenerational families closer together and increase the overall supply of housing in Canada.
Doubling the First-Time Home Buyers Tax Credit
First-time home buyers currently qualify for a Federal tax credit of $5,000 on their tax return in the year that they purchase a qualifying home. This tax credit translates into a $750 tax savings.
The Federal government plans to double this tax credit, resulting in a tax savings of $1,500 for qualifying homes purchased on, or after, January 1, 2022.
First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive was introduced in 2019 to help more Canadians finance the costs of purchasing their first home. The program provides an interest-free mortgage that is only repayable on the earlier of when the property is sold, or after 25 years from the date funds are loaned by the government. The repayment amount is not based on the amount borrowed. Instead, the repayment is based on a percentage of the future sale price or the value of the home after 25 years. The percentage is the same percentage as the amount borrowed compared to the original purchase price. With limits on the amount that can be borrowed, this program is suited for real estate located outside of more expensive urban areas.
The government plans to extend the program into 2025 and make changes that allow for more flexibility and responsiveness to the needs of first-time home buyers.
Home Buyers’ Bill of Rights
The Federal government also announced plans to work with the provinces and territories to implement a Home Buyers’ Bill of Rights. The proposal includes eliminating blind bidding wars, making the price history of sales more transparent, and ensuring a legal right to a home inspection. Together, these factors may help moderate rising real estate costs in Canada.
Measures to increase housing supply and affordability
The government will support cities and communities to invest in municipal planning to help accelerate the building of new homes. Increasing the supply of homes will help to offset some of the factors that lead to increasing prices of Canadian housing.
The government realizes that certain communities and groups of people have not had the same opportunities as others to own their own homes. To address this concern the government has introduced a number of initiatives that will:
Provide funding to build affordable housing units;
Invest in housing for Indigenous communities;
Support rent-to-own projects;
Speed up housing construction and repairs for vulnerable Canadians;
Build infrastructure and housing in Canada’s north; and
Support strategies to address homelessness.
.For more information, please speak with your BMO financial professional.
You might also be interested in these related articles:
Article 1: Canada’s Real Estate Market: 5 Things Your Need to Know
Article 3: All in the Family: A Primer on Gifting Property
Frequently Asked Questions
How can I double the First-Time Home Buyers Tax Credit?
Effective for 2022, eligible first-time home buyers will be able to claim a Federal tax credit worth $1,500 when they file their tax return for the year in which they purchase a qualifying home. This is double the $750 tax savings previously available.
What support is the Federal government providing to end homelessness?
How is the Canadian government helping those needing housing support?
The Canada Housing Benefit was launched in coordination with the provinces in 2020. The goal is to provide direct financial support to Canadians challenged by housing affordability concerns. In addition to current funding, the 2022 Federal budget proposes a one-time $500 payment to those facing housing affordability challenges.
What is the New Generation co-operative housing development?
What is the Rent-to-Own project?
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