2023 is the year of new government housing initiatives.
For as long as housing has been an issue in Canada there have been loud pleas to the federal government to enact some solutions. And in 2023, whether we agree with their stance or not, the government is responding with multiple new initiatives meant to take aim at unafforability, loosen up the housing supply and ultimately get more people into homes that don’t break the bank nationwide.
We’re breaking down those programs today.
New rules
Let’s start with the rule changes that have been making headlines.
While each new rule on its own won’t likely cure the housing crisis, the hope and intention are that the sum of the parts will.
Foreign Buyers’ Ban
After considerable pressure over several years to put the kibosh on foreign investment in Canadian real estate, the ban on non-Canadians purchasing residential property took effect on January 1st and will remain for 2 years. Pressure mounted as a result of the volume of non-Canadian investors purchasing properties to use as income properties in urban centres. While many Canadians are thrilled to see this rule change go through, there are also many critics who don’t believe that this will provide any relief, with Canadian investors not being subject to the same changes.
Some non-Canadians will also be exempt from the rule including:
A Canadian citizen or permanent resident
An international student having spent the majority of the last 5 years in Canada
A worker who has worked and filed tax returns in Canada 3 out of the last 4 years
A diplomat, consular staff or member of international organizations living in Canada
A refugee or a foreign national with temporary resident status
Time will tell if this initiative has an effect on the availability of housing in Canada!
Residential Property Flipping Rule
Effective January 1st, Canadians who purchase and sell homes with the sole purpose of renovating and flipping will be taxed fully on any profits made in the sale.
According to Bill C-32, a flipped property is defined as “a dwelling unit of a taxpayer situated in Canada that the taxpayer possessed for fewer than 365 days in a row (less than a year) previous to the disposition of the property.” This means that anyone who is currently making their living as a property flipper will have to rethink how they do business. This rule will also effect properties purchased in 2022, but being sold within a year in 2023.
Will it improve availability and affordability of properties for regular Canadians, though?
No Changes to the Stress Test
Last month the Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, announced that it would be keeping the polarizing mortgage stress test in place for the time being. As a refresher, the current stress test required uninsured mortgage applicants to qualify at the greater of either the qualifying rate of 5.25% or their mortgage rate +2%. In a climate where rates are surpassing 5%, this has forced most buyers to qualify at a rate of 7% or higher.
During its announcement, OSFI stated that it does not consider the test to be a tool for managing housing supply and that, with so much uncertainty remaining in the market, it is prudent to continue to test buyers for possibly adverse conditions. This essentially tells us that they (like most of us) are unsure of where the market will head in the coming months, so removing this added protection would be ill advised.
Later this month, the regulator is set to review B-20 which includes the qualifying rate as well as standard underwriting practice to ensure that borrowers are being fairly and soundly evaluated for their ability to service mortgages within a changing market. So, while the test does remain for now, its future is uncertain.
For First Time Buyers
Increased First Time Buyers Tax Credit
In a move meant to alleviate some of the financial burden for young buyers who are ready to cross the threshold into home ownership, a tax credit of up to $1500 will now be available for first time buyers. The Federal Budget 2022 increased the threshold used to determine the First-Time Home Buyers’ Tax Credit from $5,000 to $10,000, and the credit will be available in tax years beginning in 2022 and later.
New Tax-Free First Time Home Savings Account
This one isn’t new news, as it first came up when the federal budget was released back in April. But starting in the middle of 2023, Canadians will be able to save up to $40,000 tax-free in this newly designed account toward their first home down payment, with a yearly contribution limit of $8000.
This program is the best of both the RRSP and TFSA worlds in that contributions will be tax deductible, allowing you to lower your taxable income when you file your tax return, similarly to the RRSP. And, like the TFSA, your withdrawls will not be taxed when the time comes to purchase your home.
Will you be taking advantage of this new plan in 2023?
New Taxes & Credits
Multigenerational Home Renovation Tax Credit
This initiative is made for both homeowners looking to invest some cash into their property to begin earning an income as well as homeowners who have family members in need of a safe, affordable place to call home. It states that an additional apartment can be built into a property with the sole purpose of accommodating older citizens or persons with disabilities.
For construction beginning after January 1st, families investing in a new apartment are eligible for up to $7500 in tax credits which can be claimed by the owner, their spouse or common law partner, or a qualified connection.
If you have been considering renovating your property to add a rental income unit, this could be a great incentive to do so - both in terms of capitalizing on the credit as well as providing a home for a person in need!
The Unoccupied Tax
Starting January 1st, a 1% tax will be added to the value of any non-resident, non-Canadian property deemed unoccupied or under-utilized. The hope is that this will deter investors (both local and non-Canadian) to either sell or rent their homes to Canadians in need, rather than holding them vacant.
The yearly tax will be in place retroactively starting January 1st, 2022, so some investors will be on the hook for their payment as early as this spring. It is designed to help further discourage the depths of foreign investment and ownership that have plagued the markets here, but will also have an impact on Canadian investors and how the run their businesses. If you currently hold any vacant properties, you may want to consider your plans going forward and how you will work in the new cost.
GST/HST on Assignment Sales
This proposed change would mean that all assignment sales (including both newly built and heavily renovated properties) with agreements made after May 6th 2022 would become subject to GST/HST. Alongside the new property flipping rule, this could have a significant impact on the bottom lines of investors and have many considering changing how they run their businesses.
The Bottom Line
All of these programs on their own may not seem like they are set to make a significant difference in the landscape of the Canadian housing market. However when their impact is considered holistically, it seems as though we are at least starting out on the right track.
If you have concerns about how any of these new programs will affect you, your home, your business or your bottom line, or if you are in search of some guidance about how best to obtain any of the amazing opportunities outlined, schedule a no-obligation consultation below. We are here and so excited to chat about what this year has in store for all of us!
