New Laws that Will NOT Help

Will not help what, you ask? Improve housing affordability as the government suggests...

Anti-Flipping Tax

If you buy a property & own it for less than 12mos before you sell, then your net profit is taxed as business income. This is not really new though, it's just been officially added to the Income Tax Act. The CRA has been operating under this premise for years! There are also lots of exemptions like for death, divorce, relocations etc.

What is the net profit? What is left after all your costs associated with buying, selling & renovating the property - that is what is taxed at your regular marginal tax rate, based on your total income. If you're buying & selling through a corporation, that can help lessen the sting because the corporate tax rate is less than for personal income tax.

What's interesting though, is if you sell at a loss, which is definitely happening in some cases since the meteoric rise of interest rates in the past year, is that you CANNOT write off the loss against your income...You lost money doing something we (the government) don't want you to do? Too bad, so sad! How does that make sense?

The Foreign Buyers' Ban is really just a you could go ahead and buy the place, wait 18mos, and they've chased you, and then you sell it, and you pay the $10,000 fine. That's kind of the perfect money laundering timing scenario. - Ron Butler, Butler Mortgage

Foreign Buyers Ban

This is a 2 year ban on purchasing property anywhere in Canada unless you are a Canadian citizen,  Permanent resident or a person registered under the Indian Act with lots of exemptions like long-term international students, people with temporary work permits, refugee claimants & many others.

Foreign ownership was reported as 3.3% in the GTA back in 2019, which is the last time a number was made available by CMHC. A pretty small amount to create such a heavy handed policy around. Not to mention all the confusion & fear created for professionals who will be hit with big fines if they inadvertently (or otherwise) get caught up in a transaction with a foreign buyer. We're all scrambling to  try to figure out new best practices to assist buyers, while still protecting ourselves from this newest liability. It has been suggested that getting a "legal opinion" on a client's residency status would be the most prudent course of action! Layers upon layers of bureaucracy...

And there is already talk of "unintended" consequences & perhaps the need to revisit some of the language in this law which has caused it to be at direct odds with the stated purpose of the law in the first place. And this has to do with the foreign ownership limits of corporations. This article HERE explains it way better than I ever could & includes several quotes from top economist Benjamin Tal.

At the end of the day I really don't see how either of these measures will have any positive impact on housing affordability. It's just the usual sense of deja vu where the government does something to make it seem like they're "doing something" about a hot button issue & as a bonus,  also comes up with a new revenue stream via the fines.

Things that make you go hmmmmm...

Until next time,

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