The federal government tabled its latest budget April 7, and after Prime Minister Trudeau’s election campaign promises it’s no surprise that one of the central pieces is to tackle rising home prices that hinder people’s ability to enter the market.
Here are eight key takeaways that will help buyers with housing affordability when the budget is passed in the coming weeks.
First-Time Home Buyers’ Tax Credit
Applying to homes purchased on or after Jan. 1, 2022, this non-refundable tax credit would double to $10,000 from $5,000. The enhanced credit would provide a rebate of up to $1,500 to help buyers recover some of the costs associated with purchasing their first home.
Tax-Free First Home Savings Account
A Tax-Free First Home Savings Account would allow prospective first-time homebuyers to save up to $40,000 to use toward the purchase of their first home. Like a Registered Retirement Savings Plan (RRSP), contributions would be tax-deductible, and withdrawals to purchase a first home would be non-taxable like a Tax-Free Savings Account (TFSA). The government intends to work with financial institutions to ensure that a Tax-Free First Home Savings Account could be opened and contributed to in 2023.
Multigenerational Home Renovation Tax Credit
Starting in 2023, this refundable tax credit would allow families to claim 15% of up to $50,000 (or a maximum of $7,500) in eligible renovation and construction costs incurred in order to build a secondary suite for a senior or an adult with a disability.
First-Time Home Buyer Incentive
This incentive, which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government, would 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, including single-led households.
Under the program, first introduced in late summer 2019, the government will help some first-time buyers by advancing an interest-free loan of up to 5% of the purchase price of an existing (resale) home, and up to 10% of the cost of a new home. This will allow homebuyers to take out a smaller mortgage and keep their monthly payments lower.
Buyers must repay the incentive in full after 25 years or when the property is sold, whichever comes first. The loan would be a second mortgage on the title of the property. It has no interest nor regular principal payments, and there is no penalty for early repayment.
The government will share in the upside and downside of any change in property value when the property is later sold. If the home price goes up, so too does the amount owed to Ottawa. If the value goes down, the government will shoulder a percentage of the loss.
Banning Foreign Buyers
To make sure that housing is owned by Canadians, foreign commercial enterprises and people who are not Canadian citizens or permanent residents would be prohibited from acquiring non-recreational, residential property in Canada for a period of two years.
Refugees, people who have been authorized to come to Canada under emergency travel while fleeing international crises, international students on the pathway to permanent residency and individuals on work permits who reside in Canada would be exempt.
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.
Recently, the Ontario government increased a tax on non-resident homebuyers to 20% and expanded it to cover the whole province, as part of its action plan on housing. The tax had previously been set at 15% and only applied to homes purchased by foreign nationals, foreign corporations and taxable trustees in the Greater Golden Horseshoe region.
Limits on Property Flippers
New rules would ensure profits from flipping properties are taxed fully. Specifically, any person who sells a property they have held for less than 12 months would be considered a ‘flipper’ and 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. This measure would apply to residential properties sold on or after Jan. 1, 2023.
End of Blind Bidding
To encourage greater transparency, the federal government will engage with provinces and territories over the next year to end ‘blind bidding.’ Blind bidding is the process of submitting an offer (a bid) without the knowledge of what the other potential buyers are offering (bidding), which ultimately drives up home prices.
The Ontario government announced on April 19, that homebuyers in the province will soon be able to see competing offers but there’s a catch — they’ll only be able to do so if sellers allow their real estate agents to share that information. (Premier Ford previously said he supported the practice of blind bidding.)
The federal government would also look to develop and implement a Home Buyers’ Bill of Rights that would include ensuring a legal right to a home inspection and providing information on the history of sales prices on title searches, among other things.
Supporting Rent-to-Own Projects
To help develop and scale up rent-to-own projects across Canada, the government would provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This would include $100 million to support non-profits, co-operatives, developers and rent-to-own companies building new rent-to-own units. Examples of eligible projects, which must include safeguards and robust consumer protections, could include the repair and renewal of housing for rent-to-own purposes, among other initiatives.