“Overall, I believe the housing market is sound, but as minister of finance, I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk,” Finance Minister Bill Morneau said.
Ottawa will close a tax loophole that allows non-residents to buy homes and later claim a tax exemption on the sales. The government plans to make sure the principal-residence exemption is only available to individuals who reside in Canada in the year the home is purchased.
Other measures to combat offshore speculation, include closing the loophole that has allowed a network of speculators to flip homes for profit and avoiding taxes by classifying them as principal residences.
Under the Canadian tax code, homeowners do not have to report the sale of any property that they designate their principal residence, and do not pay tax on the increased value – or capital gains – of that home. In order to make that designation, a homeowner, their current or former spouse or any of their children must have lived in it at some time during the year for which the designation is claimed.
Many foreign buyers currently claim exemption by claiming residency either for themselves or their spouses or children simply in order to avoid paying taxes on real estate speculation. Non-resident investors must pay capital gains tax at the time of a sale.
The new measure would make the exemptions available only to home buyers who are residents at the time of purchase.
In addition to cracking down on tax leakage by foreign money, another change is that from now on, all insured mortgages must undergo a “stress test” that ensures a borrower’s ability to make their mortgage payments at a higher interest rate.
That means borrowers will be tested against their ability to pay their mortgage if actual rates were as high as the big bank’s five-year posted mortgage rates, which the Bank of Canada says currently average 4.64 per cent.
That requirement was already in place for many borrowers, including so-called “high-ratio” mortgages for people with small down payments, and borrowers who borrowed money on terms of less than five years. – CINEWS