Coming out of an unprecedented time in our nation’s history where economics, governments, and policies were all run through the COVID grinder, the 2023 year has become the sausage made from those grindings.
So far this year, we have seen the introduction of several legislations and regulations to address the impact of the pandemic on the real estate industry. While I am not a political, economic, legal or accounting expert, here are the top four fundamental real estate changes in legislation you may want to keep on your radar.
Foreign Buyer Ban
I don’t know that something similar has happened in my lifetime. Still, it is true that as of January 1, 2023, the Canadian government officially banned Non-Canadians from buying residential property for the next two years. The regulations clarifying points of the ban were released in December of 2022, making some helpful distinctions. This legislation affectionately termed the “Foreign Buyer Ban,” defines a non-Canadian as anyone who is not a Canadian citizen, permanent resident, or registered Indian under the Indian Act. Additionally, it is clear that any property type with a residential dwelling unit, including commercial, rural, recreational, and even vacant residential lots, falls under the ban, except for multi-family properties of four or more units. The one ray of sunshine here is that only when the property falls within a census agglomeration or census metropolitan area is it prohibited to purchase, meaning some of the smaller centers in Alberta may see a slight bump in sales to foreign buyers. It is essential to note that the legislation includes penalties for non-compliance against non-citizens and any person or entity who knowingly assists a non-Canadian in violating or attempting to violate the prohibition.
2023 also saw a change to tax law that sets a timeframe for owning property personally before it is considered under the personal residence exemption for capital gains taxes. The new rules require the calculation of taxes on residential property bought and sold within 12 months as business income. Any gain realized on selling a property flip or others caught in the 12-month net will require full taxes on 50% of the profit. Although some exceptions for specific family events were announced, brokerages and associates who know the property they are listing was purchased in the last 12 months need to inform their clients of this potential taxation. When this is the case, the REALTOR® or brokerage must advise their client to seek professional tax and accounting advice if it is a concern.
GST on assignments of new construction
GST rules also closed in on the assignment of new construction homes to ensure the final selling price at transfer is taxed. Although details here will require the professional advice of an accountant or tax lawyer, it effectively provides that when a new construction contract is assigned to another party, the set price is used to calculate GST, not the original price agreed to by the first buyer. For example, suppose the buyer contracts a new home with a builder at $500,000 and places a $50,000 deposit on the property as construction nears completion. In that case, the buyer sees the market booming and assigns the contract to another buyer for $600,000 plus the deposit amount. Hence, the new buyer pays the first buyer $100,000 for the increase in value and $50,000 to cover their deposit outlay totalling $150,000. GST would be taxable on $600,000 and not $500,000. Since the GST on the $500,000 would’ve already been anticipated on the first transaction, the first buyer would be on the hook for GST on the $100,000 portion of the increase, but the CRA further clarifies that GST would not apply to the reimbursement of the deposit of $50,000. This is only a high-level example, and REALTORS® who operate in this space are directed to professional tax or accounting professionals. Additional information can be found at the below link from the GOC website.
Underused Housing Tax
The Underused Housing Tax is a tax that came into effect in January 2022 and will apply to 2022 tax filings. The tax is a 1% tax on the ownership of vacant or “underused” residential property in Canada, which is generally intended to target only non-resident non-Canadians but has some provision for Canadians as well under certain circumstances. The tax is not intended to apply to newly constructed homes, seasonal homes, or otherwise inhabitable homes and other additional exceptions based on situation and occupancy, making it one of the more complicated rules to navigate. The rule provides that if you are required to report and are an affected owner under the rule, the tax is calculated by remitting 1% of the home’s assessed tax value every year that the property meets the underuse criteria. This one is like catching a greased pig at a small town fair, so you need professional advice, but penalties for affected owners non-filing start at $5,000! More information is available on the GOC website at the link below.
First Home Savings Account
Enough about the downer topics; here is a positive one! One new product I wanted to mention that blows the doors off anything else the government has done since the launch of TFSAs is the newly announced First Home Savings Account (FHSA). The FHSA allows a first-time home buyer to save a maximum of $8,000 per year to a one-time maximum of $40,000 of contribution room to purchase a new home. This is only exciting once you understand three. First, the money deposited in an FHSA is provided with a tax receipt like an RRSP, making it pre-tax money invested. Second, an FHSA is an investment vehicle that can be invested as the contributor sees fit to earn the greatest return on the invested capital. And third, when the money is withdrawn to purchase a first home, including all its earned income over the years, it is tax-free like a TFSA. That means tax-free money in and tax-free money out! As a happy bonus, you can also transfer existing RRSP money to an FHSA. These details make the FHSA an exciting opportunity for first-time buyers to save for a home without the extra tax burden on that savings. If you know anyone who may benefit, check out more details using the link below.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: firstname.lastname@example.orgPhone: 403-209-3619