Federal Budget 2022 – Mortgage and Real Estate Impacts.

Last week’s Federal Government 2022 Budget included a much-improved roadmap for first-time homebuyers to potentially save thousands in taxes when they purchase their first home.

Housing availability and affordability are targets in the budget. There is a big focus on housing for Canadians to use as homes, with direct measures against foreign investment, house flipping, and large corporations.

I’ve highlighted 8 proposed changes that could significantly affect Canadians’ investment in real estate.

1. A New Tax-Free First Home Savings Account

A new tax-free savings account for first-time homebuyers is welcome news!

Expected to roll out in 2023, first-time buyers can stash away $8,000 per year for five years ($40,000). Full contributors get an instant tax credit of $1,640 each year. When you withdraw the savings to help buy a home, it will not be taxable, nor will it have to be repaid. 

This is much better than the current RRSP Home Buyers’ Plan. And it seems both will be available to use! I only wish it is not going to take five years before first-timers get the full benefit.

2. First-Time Home Buyers’ Tax Credit Increase

The budget doubles the current tax credit to $10,000. This means a benefit of up to $1,500 for first-time buyers. 

3. Two-Year Ban on Foreign Buyer Home Purchases

The federal government plans to ban foreign investment in residential properties in Canada for two years. The plan is to help with housing affordability, but the jury is out on its impact.

Stats Canada reports less than 5% of all purchases in Toronto and Vancouver are from foreign investors. During two years of the pandemic, our real estate market was on fire with no foreign buying!

4. Taxation for Property Flippers

The budget targets house-flipping as a cause for driving the market value of houses higher.

The new rules apply to anyone selling a property they’ve held for less than 12 months. These sales will automatically be regarded as house flipping and be subject to full taxation on profits as business income.

The government will consider situations like a death in the family, disability, a new job, or other reasons one might normally take possession of a home for less than 12 months in place and make exceptions.

5. Home Buyer’s Bill of Rights

The market has become the ‘Wild West’ in recent years, and it’s good to see efforts proposed to defend home buyers. The Federal Government will develop a Home Buyers’ Bill of Rights to bring some transparency to the home buying process. Some proposed initiatives include:

• Ending blind bidding.
  
• The legal right to a home inspection
  
• Transparency on sale price history

This bill is a positive push, but it’s a future initiative that the Federal Government must develop in conjunction with the provinces. We won’t know when it will become policy.

6. No More GST/HST Exemptions for New Home Assignment Sales

The preconstruction industry relies on heavy participation from investors and speculators well before a hole has even been dug. Developers need these commitments to get funding to complete their projects. 

Many of these early buyers have no intention of sticking around. Instead, they sell (or assign) their purchase contract to someone else, often profiting hundreds of thousands of dollars. This change may kick in as early as May 7, and now GST/HST will apply to all such assignment sales.

7. First-Time Home Buyers Incentive

The First-Time Home Buyer Incentive (FTHBI) program, set to expire soon, will be extended to March 31, 2025.

The First-Time Home Buyer Incentive is a shared-equity mortgage with the Government of Canada and covers 5% for a first-time buyer in these purchase scenarios:

• Newly constructed home (5% to 10%)
• Resale (existing) home
• New or resale mobile/manufactured home

8. Rent-To-Own

The budget will allocate $200 million to support the Affordable Housing Innovation Fund, supporting non-profits, co-ops, developers, and rent-to-own companies.

Rent-to-own situations aren’t talked about too frequently in our market. Personally, I’m a little bit wary of them because many people out there have gotten themselves into a bit of a mess.

When real estate values went up so high over the last couple of years, we found that the people who offered the program initially would try to do everything possible not to complete the transaction. The price agreed to was way lower than the current market value. These opportunities exist, but I am weary of them.

The Takeaway

Most of the initiatives from the Federal Budget are interesting enough to talk about, but only time will tell how well the government implements them.

We know that housing availability and affordability are huge concerns to Canadians and it is nice to see a few measures addressing this. The problem remains, however, that it’s almost impossible for first-time homebuyers to qualify for a mortgage on their own.