The Federal government’s Budget 2022 was expected to have several measures to help Canadians with housing affordability and they certainly did deliver several initiatives. It wasn’t exactly what the mortgage industry wanted, like 30-year amortizations for first-time buyers and increasing the maximum purchase price for insured mortgages from $1M to $1.25M. These would have greatly assisted homebuyers in Brampton, Toronto and the GTA and would be less costly to implement than some of the new Budget measures. Still, there are some nuggets that will be helpful so let’s look at each and the expected impact.
Tax-Free Home Savings Account (HSA)
Starting in 2023, financial institutions can begin to offer a tax-free savings account for first-time buyers called the Tax-Free Home Savings Account. This will allow qualified first-time homebuyers under the age of 40 to contribute $8,000 per year for 5 years for a total of $40,00 or $80,000 for a couple. Like an RRSP, contributions will be tax-deductible, and like a TFSA all withdrawals which include investment income will be non-taxable. Tax-free in and tax-free out as noted in the Budget. Unused contribution room cannot be carried forward as is the case with RRSPs and TFSAs, and there is also no requirement to repay it as there is with the RRSP Home Buyers’ Plan (HBP). This new plan and the HBP cannot both be used for the same purchase. Given the size of downpayment needed in the GTA, I don’t see this providing too much home affordability relief, but it certainly does lower the tax burden slightly for first-time buyers. And we will always welcome new tax deductions.
Banning foreign buyers for 2 years
Foreign buyers who do not plan to live here will be banned from buying any type of residential property in Canada for the next two years. While there are no official stats, foreign buyers are not a large part of the market in Canada, which means this measure is likely more for optics than actual benefit. Foreigners who are purchasing their primary residence here in Canada will be exempt.
Tax on property flips
New rules will be put in place to ensure profits from property flips are taxed fully and fairly. Specifically, any person who sells a property they have held for less than 12 months will be viewed as “flipping” and subject to full taxation on their profits as business income. Exemptions of course will apply for Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce. This new measure will ensure that investors who flip homes pay their fair share of taxes and will apply to residential properties sold on or after January 1, 2023, so keep this in mind if you are looking to “flip”.
Doubling of first-time homebuyers’ tax credit
The budget promises to double the first-time homebuyers’ tax credit from $5,000 to $10,000, which will return about $1,500 to a homebuyer at tax time. This measure will apply to homes purchased on or after January 1, 2022 and will help with expenses such as legal fees and all other closing costs associated with buying a home. Again, full marks for any measure that reduces the amount of tax we pay.
Home Buyer’s Bill of Rights
With this Bill of Rights, we’ll see an end to blind bidding, which will make the bids on a home transparent so there is no significant overbidding like we’ve seen in recent months. It will be interesting to see how this is rolled out and when it is effective. The Bill of Rights will also ensure a legal right to a home inspection and transparency on the history of sale prices on title searches. This all looks like a particularly good overall benefit to homebuyers, although ending blind bidding will affect the future retirement nest egg of homeowners. Some in the industry are wondering if the government should be able to mandate how someone sells their home.
Assignment sales
Effective May 7, 2022, assignment sales of newly constructed or substantially renovated residential housing will be subject to GST/HST. This affects those who are buying preconstruction homes and then selling before taking possession of the property.
Multigenerational Home Renovation Tax Credit
Starting in 2023, this credit will provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability. Renovations are certainly taking place for this specific need in our area and this will benefit those homeowners.
Extension of First-Time Homebuyer Incentive
The First-Time Home Buyer Incentive will be extended to March 31, 2025. The government is also exploring options to make the program more flexible and responsive to the needs of first-time homebuyers. I’m not sure why this was included in the Budget instead of just admitting it didn’t work and cancelling it. This program has been very poorly received because homeowners are reluctant to share their home equity gains with the government, as they should be.
While these measures are designed to improve affordability, the Bank of Canada is signaling that it will hike its overnight interest rate by 50 basis points April 13th to counter inflation, which will further erode affordability.
Overall, the budget does offer some help but not enough to tackle affordability in Brampton, Toronto and the GTA. The main issue is supply and they didn’t adequately address the critical shortage of homes, which could continue to have an upward effect on prices. They did commit to spending $4 billion to speed up the development of 100.000 homes within 5 years but really, that’s a drop in the bucket compared to what is needed, especially given our immigration targets. The Budget also did not have other anticipated items like increasing the downpayment amount for investors and initiating a cooling offer period for purchases. However, there was a huge sigh of relief that they kept the taxation of gains on principal residences off the table. Let’s hope that continues long into the future.
That’s a wrap for Budget 2022, it offers something but not enough to address our chronic undersupply of homes. With increasing complexities to buy a home, a changing mortgage landscape and rising rates, expert advice as early in the home buying process as possible is more critical than ever so please contact me at anytime. I’m here to help!
