Housing Affordability - 5 changes that you need to know in 2023.
Housing affordability is certainly getting harder and harder, especially if you are a First Time Home Buyer (FTHB).
This is an ongoing issue with many variables. It may be the supply that is driving prices up or it becoming harder to find a home because rates have risen and people aren’t moving like they used to, or is it the demand that comes from some of these new initiatives and the constant influx of immigration or foreign investment allowed by our governments.
The below initiatives are intended by the Government to help make housing more affordable, but you be the judge. If you would like to discuss your situation and how to benefit from them and save a ton on your mortgage while doing so, feel free to reach out or share with someone you know who could benefit.
These initiatives include:
1. FTHB Tax Credit Increase and other ways to save
2. First Time Homebuyer Savings Account
3. Multigenerational Home Reno Tax Credit: Anti-Flipping Tax
4. Temporary Ban of Foreign Home Purchases
5. Vacant Home
FTHB Tax Credit Increase
Buying a home can have a lot of costs, some upfront and some as you go, like land transfer taxes and a list of closing costs. This can make affording a home harder. How does $1500 help?
“The First-Time Home Buyer’s Tax Credit is a $10,000 non-refundable tax credit. Up until 2021, the tax credit amount was $5,000, but in 2022 legislation was passed to increase this to $10,000 for 2022 and all subsequent tax years. If you’re buying a home for the first time, claiming the first-time homebuyer credit can land you a total tax rebate of $1,500 ($750 until the 2022 budget was approved). While $1,500 isn’t a life-changing amount of money, it can make buying your first home a little bit easier. The First-Time Home Buyer’s Tax Credit was first introduced in 2009, and is available to all qualifying Canadian taxpayers.”
You can qualify for this is you or your partner are buying a home that qualifies and you didn’t live in a home owned by you in that year or four years preceding it.
Your home qualifies if: it is a single family home, semi-detached, townhouse, condo, mobile home, whether existing or new construction located in Canada. You must move into the home within one year of making the purchase and the home must be registered as your primary residence.
To claim this credit, have your accountant or yourself filling the amount on Line 31270 of your Schedule 1 (previously line 369 on your income tax return) with the amount $10,000 for 2022 and subsequent years (or $5,000 up until 2021). That’s it. The CRA will do the rest.
What Other Credits Am I Eligible For? To help make things more affordable for first time home buyers, you can also benefit from:
1. First Time Home Buyer Incentive – a shared equity loan given by the Federal Government whereby they will pill up to 10% of the cost of their home. Visit https://www.cmhc-schl.gc.ca/en/consumers/home-buying/first-time-home-buyer-incentive for more details.
2. Land Transfer Tax Rebates – these taxes are the largest portion of closing costs and depending on which province and city you want to move to, you may have more than one tax imposed on you. For example, Toronto is the only city in Ontario that levies such a tax, meaning you pay two taxes if you want to live there. In some provinces (only Ontario, British Columbia and Prince Edward Island currently) and cities (Toronto), there is a rebate available to help first time. For example, to learn more about Ontario’s tax, how to calculate it and what refund you can obtain, visit: https://www.ontario.ca/document/land-transfer-tax/land-transfer-tax-refunds-first-time-homebuyers
3. HST New Housing Rebate - if you paid GST or HST when purchasing your home, you may be eligible for a rebate from your federal or provincial government.
4. First Time Home Buyer Plan – the Federal Government allows you to withdraw (with repayment requirements) up to $35,000 from your RRSP to use towards your down payment.
First Time Homebuyer Savings Account
Expected to be available by mid-2023, imagine a product that is part RRSP and part TFSA, that was designed to give first time home buyers the ability to save $40,000 on a tax-free basis, with an annual contribution limit of $8000. Like an RRSP, the contributions are tax deductible (including investment income), and should you ever withdraw the funds, it is tax-free, if for a house. If not, then you are taxed at your current tax rate.
The intention is to help people who do not own a house, or haven’t in the previous 4 years, prior to opening this account. You must open a new account (you must do this in order to begin creating contribution room, whereas a TFSA everyone gets an amount based on age since TFSA began) and anyone who is a resident of Canada and at least 18 years old can do it.
The FHSA becomes void if 15 years have past since you opened the FHSA or you turn 71 years old.
Any savings not used to purchase a qualifying home could be transferred, tax-free, to your RRSP/RRIF to prevent any taxation (unless if transferred to a RRIF whereby you will be taxed the following year of your first qualify withdrawal).
When contributing annually, like an RRSP, it can aid in decreasing your taxable income and may help provide a (bigger) refund.
So, if you don’t own a home (and qualify), even if you may never, open an account this year. Start accumulating tax- deductible and tax-free savings and growth, and then use it for your house, or don’t. If you don’t, put it into your RRSP and continue to benefit.
Multigenerational Home Reno Tax Credit
Do you have an adult with a disability or an elderly parent over the age of 65 living with you? If you have a qualifying relationship, beginning January 1, 2023, the Federal government will allow households to claim a 15% tax credit for up to $50,000 towards a renovation or construction project aimed to help build a secondary suite in your primary property, not a separate residence.
Anti-Flipping Tax
With historically low interest rates over the past few years, Canadians who were in a position to benefit, did by leveraging the low cost of money and buying, renting, and reselling properties to earn a profit. In order to cool this issue down, the Federal Government introduced an anti-flipping tax. Essentially, if you hold a property for less than 12 months and sell, your profit will be taxed as business income.
In the past, this tax didn’t not exist, making it more lucrative to make these investments. They were considered capital gains and taxed at 50% of the gains from the sale. If it was your primary residence, it was exempt from those capital gains.
Now, any property sold after January 1, 2023 would be affected, and no capital gains or exemption would exist.
The intent is to increase fairness for supply and demand, taxation, and affordability for all Canadians.
There are exceptions to this new tax based on certain life circumstances and it is not automatic that the sale would result in being included as business income. Just a few of these exceptions are:
Changes in life
· Births of children
· New Job
· Divorce
· Death
· Disability
· Potentially others as this tax matures
It is on the owner to prove the facts of circumstance so an auditor can review and class it as business income, capital gain, or an exemption.
Temporary Ban of Foreign Home Purchases
Immigration numbers will continue to rise to over 500k/year by 2025, making it harder for existing Canadians. However, with inexpensive money and a great landscape to invest in Canadian real estate, foreign buyers have been placing their investments in our real estate.
Starting January 1, 2023, foreign enterprises and people (Anyone who is not a Canadian citizen or a permanent resident) will be prohibited to buy any real estate for a 2-year period.
This is an attempt to cool the speculation that foreign investors are eating up the available supply, creating bidding wars and driving up prices, all while they stay empty, leaving Canadians without a place to call home. This ban is connected to Governments approach to curb these issues, along with the imposed increased cost of borrowing through higher interest rates, which is supposed to encourage those foreign investors to go elsewhere and provide better opportunity for existing Canadians.
Anyone found in contravention of the ban will be fined up to $10,000 and may be ordered to sell the property. If you ask me, $10,000 isnt that much when homes cost hundred of thousands. Even being legislated to sell it if found guilty can still provide them the opportunity they were seeking. As this ban develops, we will see how much it does to help. Like with many other things, this is just one measure designed to help.
Vacant Home Tax
For Torontonians, letting your home stay vacant may cost you. Vacant property holders will now have to pay a tax that is calculated as 1% of the property’s Current Value Assessment.
Other municipalities and possibly the province may follow suit, but for now, Toronto has started this initiative on New Year Day!
A property is considered vacant if it was not in use as a principal residence by the owner or a tenant for a total of 6 months or more during the previous calendar year. For example, a $750,00 property that remains vacant will be subject to $7,500 in tax. To avoid this tax, either the owner themselves or a tenant must occupy the property for six months per calendar year.
The goal of this tax is to increase the supply of housing by discouraging owners from leaving their properties vacant. Rent it or sell. Otherwise, be subject to the tax.
Now, all owners will be mandated to declare occupancy of their properties, even if they live there. Declarations must be made by the homeowner or someone acting on behalf of the owner. The declaration will determine whether the Vacant Home Tax applies and is payable.
To learn more and how to declare, as required by (by)law. Visit https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/
We have a housing crisis and there is no magic pill or silver bullet. Some of these measures may help or make things worse. Time is the one equalizer.
Let me know if you need support in making a place you can call home.
