The budget prioritizes easing affordability hurdles for young Canadians, particularly in homeownership, while tax changes aim to target only wealthier individuals
Read the full report – Solving the Housing Crisis: Canada’s Housing Plan.
Will it meet these goals? Maybe, but we wait and wonder given the Liberal government’s history of lack of execution. This was primarily a big spending election budget, and unfortunately, an inflationary move and not the wisest one when we need to get CPI within the 2% target and ensure it doesn’t rebound.
Support for First-Time Buyers
The younger generations voted in the Trudeau government and now it seems they are leaving the party in droves. That’s why the housing crisis and affordability were the budget’s highest priorities. There were two big initiatives for first-time buyers – 30-year amortizations for first-home buyers on new builds and increasing withdrawal limits for the RRSP Home Buyer’s Plan.
Insured 30-Year Amortizations – Effective August 1, 2024
The housing industry has long wanted 30-year amortizations to return for all homebuyers, particularly for first-time buyers. Now, first-time buyers who purchase a new construction home can access a 30-year amortization mortgage. The reason behind extending this to a limited group is that the government did not want to stoke the housing market and ignite housing prices given our chronic lack of housing supply. Unfortunately for first-time buyers, most developers require a deposit of at least 20% for new homes, and homebuilders could increase their prices to reflect the increased buying power. Builders could, however, step up to the plate and reduce their deposit requirements, and hopefully, they will find this an incentive to build more homes.
The good thing about this is that this “toe dipping” will be monitored and there is a possibility it may be extended to all first-time buyers at some point. It also corrects the injustice that well-off children with parental downpayment assistance can achieve a 20% down payment and qualify for extended amortizations, while insured borrowers with less than 20% down cannot.
This measure is also limited by the fact that insured mortgages have a maximum limit of $1M which can be a roadblock when shopping for a home in Brampton, Toronto, and all the Greater Toronto Area.
RRSP Home Buyer’s Plan
First-time buyers can now withdraw a maximum of $60,000 from their RRSPs, up from the current $35,000. Additionally, those withdrawing funds between January 1, 2022, and December 31, 2025, will now have five years instead of two before repayments begin. These changes came into effect on budget day – April 16. This measure won’t move the needle since not many first-time buyers withdrew the current $35,000 maximum.
Other Housing-Related Measures
This was a budget to address fairness among generations so there were more housing measures than those targeting first-time buyers. The increase in the capital gains inclusion rate is supposedly targeted only to the “super wealthy” but that is debatable, and it certainly does have housing-related impacts.
Permanent Amortization Relief for Some Homeowners
The government is enhancing the Canadian Mortgage Charter to offer “permanent amortization relief” to those homeowners struggling to make their mortgage payments and are considered “at-risk.” Lenders will need to proactively reach out and reduce their mortgage payments to a manageable level for as long as necessary.
The Big One – Change to the Taxation of Capital Gains
The Budget introduced a significant tax change: the inclusion rate on capital gains will increase, affecting certain homeowners and investors. On June 25, 2024, the new inclusion rate at which capital gains will be taxed is set to rise from 50% to 66% and apply to property sales other than primary residences like vacation properties, second homes, and rental properties. All yearly capital gains exceeding $250,000 for individuals will be subject to this higher inclusion rate. Amounts up to $250,000 will be at the current rate.
Right now, all your employment income is 100% taxed. Capital gains receive preferential treatment since only 50% of those profits are included in your income and taxed accordingly. This will still be the case for the first $250,000 but will increase to 66.6% on gains above that level.
Here is an example:
- Under the previous tax rules, if you sold a non-primary residence property like your vacation home for $900,000 after buying it for $400,000, you would include 50% of that $500,000 gain or $250,000 in your total taxable income.
- With the new tax rules, you now must include 66.6% of your $500,000 gain in your taxable income. This results in $333,333 of your profit being subject to tax assuming you’ve already exceeded the first $250,000 exemption, or $291,885 if you haven’t.
We are always relieved when the Budget reassures homeowners that our primary residences will continue to be exempt from capital gains tax. Three cheers for this!
Unfortunately, all capital gains for trusts and corporations will be taxed at this higher inclusion rate, which won’t help the country’s productivity issues.
Additional Housing Goodies
- The CMHC-managed Canada Secondary Suite Loan Program will allow homeowners to access low-interest loans of up to $40,000 to add secondary suites to their homes.
- The Canadian Renters’ Bill of Rights will feature a Tenant Protection Fund and allow rental payment history to be included in credit score calculations.
- The freeing up of underutilized public land and leasing it to builders to construct affordable homes.
- A plan to construct 3.87 million new homes by 2031, comprising 2 million net new homes alongside the 1.87 million homes already projected to be built by the Canada Mortgage and Housing Corporation.
- Plans to consult with the mortgage industry to develop direct income verification through CRA to reduce real estate and mortgage fraud.
What’s the Bottom Line?
While Budget 2024 aims to address the housing crisis and support first-time buyers, its effectiveness remains uncertain. The initiatives targeting first-time buyers, such as 30-year amortization for new builds and increased withdrawal limits for the RRSP Home Buyer’s Plan, offer some relief. However, challenges persist given that the first-time buyer measures only target a small portion of buyers, and we must wonder about execution and the potential inflationary impacts of this budget.
Rakhi Madan, Brampton’s top-rated mortgage broker, stands ready to guide you through the complex maze of what is available and to whom. As a first-time buyer specialist, Rakhi provides expert advice and personalized attention to help you achieve your homeownership dreams. Don’t hesitate to contact Rakhi to determine if you can take advantage of the budget’s first-time buyer measures and for support on how to navigate the ever-changing housing and mortgage markets.
