Home prices in Canada have skyrocketed, particularly in large cities like Toronto and Vancouver, leaving Canadians scrambling to find affordable places to live. In response, the Canadian government has launched several initiatives to create more accessible and affordable housing solutions – taking a unique approach to addressing this pressing issue, including a foreign buyer ban and anti-flipping laws.

The first measure is a tax on investors who flip homes for profit. This will ensure that those buying and reselling homes are paying their fair share, thus helping to lower prices for Canadians. Additionally, the government has updated the National Housing Strategy (NHS), a 10-year plan with over $72 billion allocated toward making housing more affordable.

Bill C-32 omnibus of legislation includes increasing access to rental markets and supporting low-income households. Other measures include restrictions on non-Canadians purchasing residential real estate and taxes on vacant properties to discourage speculation in the market. Alongside, NHS seeks to address Canada’s housing supply shortage by encouraging the construction of new homes and restoring affordability. 

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Key Highlights

• The federal government has introduced financial incentives and restrictions on housing with the successful passing of Bill C-32.
• Anti-flipping tax makes it costlier to speculate or flip a home within 365 days by limiting the principal residence (tax credit) exception. 
• The foreign buyer ban has put a 2-year moratorium on non-Canadian individuals and entities purchasing property in Canada.

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These measures have been met with mixed reactions from experts, with some arguing that they may not be enough to address the issue of rising house prices in Canada’s major cities. Nevertheless, these steps taken by the Canadian government demonstrate its commitment to ensuring that all Canadians have access to affordable housing options.

What is the New Anti-flipping Tax in Canada?

The new anti-flipping tax in Canada is designed to ensure that profits from flipping residential real estate are subject to being fully taxed. This measure was proposed by the federal government and came into effect on January 1, 2023. Under this new rule, any gain realized from selling a “flipped property” is considered business income and will be fully taxable. This means that the principal residence exemption can no longer be used to shelter these gains.

The new rule was enacted to deter property flipping as a way to make a quick profit. The tax is levied on any profits from selling property within 365 days of purchase. Investors may be subject to significantly more tax if they sell their properties too quickly. This tax also aims to reduce speculative activities in the housing market, such as house flipping, which can lead to inflated prices and decreased affordability for potential home buyers. 

The tax applies to assignment sales for newly constructed or substantially renovated single-unit residential properties. The government hopes to increase affordable housing for Canadians looking to purchase homes and condos by taxing those making quick profits from buying and reselling real estate.

Additionally, the government estimates that this measure could bring up to $3 billion over the next 3 years towards funding initiatives like increasing access to rental markets or providing support for low-income households. This could mean much-needed relief for those struggling to find affordable housing in an increasingly expensive market.

While the implications of this new tax are still unclear, one thing is sure: it may be an essential step towards making housing more accessible and affordable for all Canadians. It is crucial for Canadians considering buying and selling real estate to understand the implications of this new tax law so they can make informed decisions about their investments.

New Anti-Flipping Rules Overview

The Canadian Revenue Agency (CRA) is introducing a new anti-flipping rule in 2023 that will affect investors and homeowners nationwide. The rule applies to dispositions of residential property held for less than a year. Any gain realized from selling such properties will be taxable as business income instead of capital gains. This means that profits from flipping houses will no longer be eligible for the principal residence exemption and will be fully taxable.

It is important to note that this rule does not apply to all real estate transactions, only those where the property has been sold within 12 months of purchase. It also does not apply to properties held for more than 12 months or those purchased before January 1st, 2023. The CRA’s new anti-flipping rule addresses speculation in real estate transactions and discourages people from buying and selling properties solely for profit. Making these profits fully taxable encourages people to invest in properties with an eye toward long-term appreciation rather than short-term gains.

Exceptions to the New Anti-Flipping Rules

The new residential property flipping rule, announced in the federal budget of 2022, states that any profits from flipping properties must be fully taxed. However, there are certain exceptions to this rule. 

Individuals meeting certain circumstances who sell their residential property within 12 months may be exempt from the new anti-flipping measure. Exemptions include life events such as the death of the individual or a related party, an addition to a household, or a change in the use of the property.

These could include one of the following exemptions:

• death of the taxpayer or a related person, or the taxpayer is joining a related person’s household
• a related person joining the household (birth of child, adoption, or care of elderly parent)
• breakdown of a marriage or common-law partnership of the taxpayer (if living apart for at least 90 days before the disposition)
• threat to the personal safety or disability / serious illness of the taxpayer or a related person,
• “eligible relocation” of the taxpayer or their spouse or common-law partner (e.g., a work relocation where the new home is at least 40 km closer to the new work location)
• involuntary termination of employment of the taxpayer or their spouse/common-law partner
•  insolvency of the taxpayer and destruction/expropriation against their will.

Residential property owners must understand the new anti-flipping rules and how they may affect them when selling their property. Consulting with a real estate tax or legal professional can ensure you comply with all applicable regulations and take advantage of available exemptions.

What is the Primary Residence Exemption?

The primary residence exemption is a tax credit offered by the Canadian Revenue Agency (CRA) for Canadians who sell their principal residence. The exemption allows them to avoid paying taxes on profits, provided they have lived in the home as their primary residence for at least 4 of the last 5 years.

The primary residence exemption eliminates capital gains taxes, which can be a valuable way to save money when selling your home. It only applies to one property per family unit, so you can only claim the exemption for one if you own more than one appreciated property. It also does not apply to properties held for investment purposes or income-generating activities such as rental properties.

In cases where the seller could not live in the house due to circumstances beyond their control (such as job transfer or military service), they may still qualify for a partial exemption based on how long they resided in the property before selling it. In addition, special rules may apply if there is a change in use of the property after purchase but before the sale (for example, converting a personal residence into a rental unit).

The primary residence exemption can provide significant financial benefits when it comes time to sell your home. Understanding how it works will help ensure you take full advantage of it. It is best to consult a tax professional to get complete details on all aspects of this tax credit and discuss strategies related to its application in your situation.

What is the Foreign Buyers Ban?

The foreign buyer ban is a new law in Canada on January 1, 2023. It prohibits non-Canadians and non-permanent residents from purchasing residential properties in the country for 2 years. The federal government introduced the ban to help ease one of the most unaffordable housing markets in the world.

The foreign buyer ban applies to commercial entities and individuals that are citizens of another country, with several exemptions. It does not apply to Canadians looking abroad to purchase a home in their home country. Exemptions to foreign buyers include those with work or study permits, status refugee claimants, and those living in Canada for at least 1 year.

The impact of this ban on Canada’s housing market is yet to be seen, but it could lead to a renewed focus on blanket housing policies like this one. It could also affect the US real estate market, as foreign buyers may look elsewhere for investment opportunities.

Overall, the foreign buyer ban is essential to addressing the affordability crisis in Canada’s housing market. It will help ensure Canadians have access to affordable housing options and that foreign investors are not taking advantage of the market.

Who is Considered a Foreign Buyer in Canada?

For an individual or corporation to be considered a foreign buyer in Canada, they must not be a permanent resident or citizen of Canada. International students, temporary foreign workers, and status refugee claimants may purchase one property as long as they have lived in Canada for several years.

Overall, the 2-year ban on a particular class of foreigners buying homes in Canada is intended to help make housing more accessible and affordable for Canadians while discouraging speculation in the market. It will also help protect against potential price manipulation by foreign buyers looking to invest in Canadian real estate.

In conclusion, no permanent resident or citizen of Canada is considered a foreign buyer under this new law. International students and foreign workers may purchase one property as long as they have lived in Canada for a certain number of years; however, commercial enterprises are prohibited from purchasing residential properties for investment during these 2 years.

FAQ

Final Thoughts

Are you considering buying or selling a Canadian property anytime soon? If so, you need to know about the latest restrictions for foreign buyers and tax implications on house flipping. These are widely discussed topics among the mortgage industry and real estate professionals, but the intricacies of how these new regulations may affect your transaction can easily slip through. Homebuyers and homeowners must stay on top of what’s happening to make informed decisions when entering a purchase contract. 

These latest changes to restrict foreign buyers and anti-flipping tax laws are essential for anyone considering entering the housing market – whether a first-time homebuyer or a seasoned veteran. At nesto, we keep our finger on the pulse of the mortgage and housing industry so that you don’t have to. Our commission-free mortgage experts can answer any questions about how these new regulations will affect your next transaction. Contact us today to understand your options!

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