The federal government dropped the 2022 budget a couple of weeks ago. Immediately after, articles came pouring out about how it will impact different people, different businesses, different industries. A lot of it is difficult to decipher. Even more difficult is understanding what tangible impact it will have on your day-to-day life.
That’s why I thought a post like this was important. If you own real estate, are thinking of owning real estate, or you’re in the real estate industry, here are the parts of the budget you should know about.
The First Time Home Savings Account
The government is proposing a tax-free savings account of up to $40,000 for first-time home buyers. Beginning in 2023, this would allow Canadians to contribute up to $8,000 per year untaxed, unless withdrawals are made for anything other than a home. In my opinion, this is a great initiative. But it’s not going to move the needle on long term affordability – especially not in urban areas like Toronto or Vancouver.
Home Buyers Tax Credit Increase
Currently, first-time buyers can obtain a $750 non-refundable tax credit. This budget sees that credit doubling to $1500. As long as you haven’t owned a home in the last 4 years, you’ll qualify.
Home Accessibility Tax Credit
Similar to the Home Buyers Tax Credit, the Home Accessibility Tax Credit is an existing relief measure that will double its annual expense limit. Currently, eligible homeowners can expense 15% of costs to make their home more accessible. That will change to 30% in 2023. This is a great initiative for Canadians with mobility issues; but I’m a little skeptical that enough people will use it to make a broad impact.
Multigenerational Home Renovation Tax Credit
I call this one the “Basement Reno Tax Credit” – because in my estimation, 9 times out of 10, that’s exactly what it will be used for. I think a lot of people will take advantage of this given the ever growing sandwich generation: middle-aged adults supporting their adult children and their aging parents. This credit allows homeowners to get a 15% tax credit on a reno at a maximum cost of $50,000. That’s up to $7,500 right back in people’s pockets. Not too shabby.
Residential Property Flipping Rule
Investors were getting “creative” with how they reported their profits from flipping homes. The government caught on and initiated this new rule. Now, if you buy a house and sell it within 12 months, the profit will not be treated and taxed as capital gains – it will instead be considered business income. That means it’s taxed at 100% instead of 50%. Definitely something to look out for if you’re thinking of buying and selling a home soon.
Foreign Buyers Ban
The federal government has banned foreign entities from purchasing residential property in Canada for the next 2 years. Why? The government says this will help stabilize the housing market coming out of the pandemic. But I can already see a ton of loopholes. Think refugees, international students, individuals with work permits, etc.
The Bottom Line
Rates are on the up and up. The stress test is getting harder to pass. Housing prices are expected to rise by more than 10% this year. Owning in Canada is extremely difficult right now, and nothing in this budget is going to make it materially easier.
Our problem is supply. There’s way too much red tape between builders and their ability to build new homes, and new homes is exactly what we need to improve the affordability crisis. As a property owner, a real estate investor, and as a Canadian, I must say it’s disappointing to see so little in the budget that addresses this core issue.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; firstname.lastname@example.org