Canadian Federal Budget 2022: Understanding the Proposed Real Estate Changes Including Foreign Buyer Ban, Property Flipping Tax and HST on AssignmentsBy Kormans LLP
With the aim of ameliorating the current housing affordability crisis, the Government of Canada’s 2022 federal budget includes numerous proposed measures to cool down the housing market. The specific goals to achieve this aim include increasing the supply of housing, assisting Canadian first-time home buyers, protecting renters, and curtailing practices which drive up the price of housing.
Some specific measures, if implemented, will have a direct impact on certain segments of purchasers and investors within the Canadian real estate market, and will consequently impact some of the procedures pertaining to the real estate transactions involving those purchasers and investors. These measures are highlighted below:
- To make the process of buying a home more open and transparent, the Government plans to bring forward a national plan to end blind bidding and ensure a legal right to a home inspection.
- Budget 2022 proposes a ban on foreign investment in residential real estate. This would effectively mean that people who are not Canadian citizens or permanent residents will be prohibited from acquiring residential property in Canada for a period of two years. Exemptions from this ban would include refugees and international students on the path to permanent residency.
- Existing homeowners who are non-Canadian and non resident, and who are leaving their homes underused or left vacant would be subject to the proposed Underused Housing Tax (this tax has been proposed by Federal Bill C-8 and imposes an annual 1% tax on Canadian residential properties which are not specifically exempted by the Underused Housing Tax Act).
- The foreign investment ban would effectively negate the need for Ontario real estate lawyers to take into consideration the application of the Ontario Non-Resident Speculation Tax on the closings of purchase transactions (which, incidentally, was recently increased from 15 per cent to 20 per cent by the Ontario Government prior to this proposed ban in the federal budget).
- Budget 2022 measures also target property flipping. A person who sells a property which they have held for less than 12 months would be considered a property flipper (with some exemptions) and would be subject to full taxation on their profits as business income.
- Assignment sales, a popular avenue for real estate investors in Canada, are also being targeted by Budget 2022. Put simply, assignment sales involve the sale of a contract to purchase a property by an assignor, to an assignee. As it currently stands, Goods and Services Tax/Harmonized Sales Tax (GST/HST) may or may not apply to an assignment transaction as the application of the tax is contingent on the original intention of the assignor in purchasing the property. For the parties involved, along with their real estate lawyers, this created a lot of uncertainty regarding whether the tax applies to a given transaction or not. Budget 2022 proposes making all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. The initial intention of the assignor will no longer be relevant to this assessment, and there will no longer be uncertainty with regards to the application of GST/HST on such transactions.
The potential impacts of the highlighted Budget 2022 measures on the Canadian real estate market are awaited with interest. It is yet to be determined whether the proposed measures will have an effect on housing affordability into the future.
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