Federal Budget Impact on Real Estate

By Leon Efraim . December 1, 2022 .

In today’s post I discuss the new housing-related measures that were announced in the 2022 federal budget. In general the measures fall into two distinct categories, measures designed to reduce speculation in real estate and measures designed to improve housing affordability.

1. Measures Designed to reduce speculation

a) taxation of “flipping” income

Starting January 1, 2023, anyone who sells a property they’ve owned for less than 12 months will have their profits taxed as business income (with exceptions made in cases where it can be proven that the sale was tied to legitimate unforeseen circumstances e.g. death, disability, lost job, or a divorce.

b) Two-Year Ban on Foreign Homebuyers

The Budget contemplates new rules to prohibit foreign commercial enterprises and individuals who are not Canadian citizens or permanent residents from acquiring residential property in Canada for two years. Notably, refugees, foreign workers and international students on the path to permanent residency are expected to be exempt. Update: this was introduced on April 28, 2022 as part of Bill C-19, An Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022 and other measures

c) Taxation of Assignment Sales

Effective May 7, 2022, all assignment sales of newly constructed or substantially renovated residential housing will be taxable for GST/HST purposes. Assignment sales involves the purchase of a pre-construction property and subsequent sale of the contract to a third-party prior to occupancy.

2. Measures designed to improve housing affordability

a) Measures for First Time Home Buyers

i) First Home Saving Account

Starting in 2023, first-time home buyers will have the ability to contribute up to $40,000 to a new tax-free savings First Home Savings Account. Like an RRSP it allows for tax deductible contributions and like a TFSA there is no tax on withdrawal for a house purchase.

ii) Increase to First-Time Home Buyer’s Tax-Credit

The Home Buyers’ tax credit is a federal government program to make homeownership more attainable for some Canadians. Initially, the program allowed eligible first-time home buyers to claim a $5,000 non-refundable income tax credit. This measure would apply to homes purchased on or after January 1, 2022 and Doubles the First-Time Home Buyers’ Tax Credit amount to $10,000. The enhanced credit would provide up to $1,500 in direct support to home buyers.

All of these programs are helpful to those entering the market for the first time. It is unfortunate that the government is unable to increase the savings available to participants.

  iii) First Time Home Buyer’s Incentive

Extension of the First-Time Home Buyer Incentive which allows eligible first-time home buyers to lower their borrowing costs by sharing the cost of buying a home with the government to March 31, 2025. The government is exploring options to make the program more flexible and responsive to the needs of first-time home buyers, including single-led households.

b) The Housing Accelerator Fund

This $4 billion fund, administered by the Canada Mortgage and Housing Corporation (CMHC), will encourage municipalities to “grow housing supply faster than their historical average; increase densification; speed-up approval times; tackle NIMBYism and establish inclusionary zoning bylaws; and encourage public transit-oriented development.”

The federal government expects that this fund will lead to the creation of an additional 100,000 new housing units over the next five years.

It is predicted that we will need 3.5 million new homes by 2031 to close the gap between our population growth, fueled mainly by planned-for record levels of immigration, and our stock of housing.

Assuming the municipalities and the provinces are agreeable to reducing red tape, which is not guaranteed, its impact will not be as impactful as one would think. Based on 100,000 homes $4 billion in funding works out to $40,000 per home, given the current cost of construction, which has risen 30 per cent since the pandemic, at most this measure will help keep housing costs stable but is unlikely to create more affordability.

Nonetheless, this measure will be helpful.