Increasing our housing supply will help make housing more affordable, but it isn’t the only solution.
There is concern that foreign investment, property flipping and speculation, and illegal activity are driving up the cost of housing in Canada
Budget 2022 proposes new measures that will ban foreign investment in residential real estate, crack down on illegal activity in our housing market, and make sure that property flippers and speculators are paying their fair share of tax.
A Ban on Foreign Investment in Canadian Housing
For years, foreign money has been coming into Canada to buy residential real estate. This has fueled concerns about the impact on costs in cities like Vancouver and Toronto and worries about Canadians being priced out of the housing market in cities and towns across the country.
- To make sure that housing is owned by Canadians instead of foreign investors, Budget 2022 announces the government’s intention to propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non- recreational, residential property in Canada for a period of two years.
Refugees and people who have been authorized to come to Canada under emergency travel while fleeing international crises would be exempted. International students on the path to permanent residency would also be exempt in certain circumstances, as would individuals on work permits who are residing in Canada.
The government will continue to monitor the impact that foreign money is having on housing costs across Canada and may come forward with additional measures to strengthen the enforcement of the proposed ban if necessary. Non-resident, non-Canadians who own homes that are being underused or left vacant would be subject to the Underused Housing Tax once it is in effect.
Making Property Flippers Pay Their Fair Share
Property flipping—buying a house and selling it for much more than what was paid for it just a short time prior—can unfairly lead to higher housing prices, and some people who engage in property flipping may be improperly reporting their profits to pay less tax.
- Budget 2022 proposes to introduce new rules to ensure profits from flipping properties are taxed fully and fairly. Specifically, any person who sells a property they have held for less than 12 months would be considered to be flipping properties and would be subject to full taxation on their profits as business income. Exemptions would 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. Exemptions will be set in forthcoming rules and Canadians will be consulted on the draft legislative proposals.
This new measure will ensure that investors who flip homes pay their fair share, while protecting the current, vitally important, principal residence exemption for Canadians who use their houses as homes.
The measure would apply to residential properties sold on or after January 1, 2023.
Taxing Assignment Sales
Homes should be for people to live in, not commodities to be traded and profited upon by housing speculators. Speculative trading in the Canadian housing market contributes to higher prices for Canadians. Speculative trading can include the resale of housing before it has even been constructed or lived in. This is called an “assignment sale.”
Currently, when a person makes a new home assignment sale, Goods and Services Tax/Harmonized Sales Tax (GST/HST) may or may not apply, depending on the reason for purchasing the home. For example, GST/HST does not apply if the buyer initially intended to live in the home.
This creates an opportunity for speculators to be dishonest about their original intentions, and uncertainty for everyone involved in an assignment sale as to whether GST/HST applies. The current rules also result in the uneven application of GST/HST to the full and final prices of new homes.
- To address these issues, Budget 2022 proposes to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes, effective May 7, 2022.
Protecting Canadians From Money Laundering in the Mortgage Lending Sector
In recent years, there has been a growth in mortgages issued by lending businesses not regulated under the national anti-money laundering and anti- terrorist financing rules that apply to other financial institutions, such as banks. This puts many middle class Canadians, and their most important investment, at financial risk.
- To help prevent financial crimes in the real estate sector, the federal government is announcing its intention to extend anti-money laundering and anti-terrorist financing requirements to all businesses conducting mortgage lending in Canada within the next year.
This will limit the exploitation of the real estate market by criminals, which can affect housing affordability across the country.
Source: https://budget.gc.ca/2022/report-rapport/chap1-en.html#2022-1