Finance Minister Chrystia Freeland released the new 2022 Federal Budget in early April. Highlighting the Budget were several proposed measures to ease the troubles of housing access – particularly for first time home buyers, affordability, and foreign ownership.
Freeland’s Budget proposes the Tax-Free First Home Savings Account (FHSA), which gives home buyers the ability to save a maximum of $40,000 towards their first home. Similar to a TFSA account, the contributions to the account will be tax deductible like an RRSP, however, withdrawals will be non-taxable. Withdrawals made to purchase a first home won’t be taxed, but amounts withdrawn for other purposes will be taxable.
To apply for the FHSA, the accountholder must be a Canadian resident, over the age of 18 and have not owned a home at any time during the year the account is opened or the preceding four calendar years. There will be a lifetime limit of $40,000 in contributions with an $8,000 limit on annual contributions, which can’t be carried forward to subsequent years. FHSA funds that aren’t used can be transferred to an RRSP or RRIF. These won’t be taxable at the time of transfer but will be subject to tax when withdrawn like regular RRSP or RRIF withdrawals.
The Home Buyers’ Plan (HBP), which allows individuals to withdraw up to $35,000 tax free from an RRSP to purchase or build a home, will still be available. However, individuals will not be permitted to withdraw from both an FHSA and HBP account for the same qualifying home purchase. In addition, the First Time Home Buyers Tax Credit is proposed to double to $10,000.
New to 2022 is the government’s intention to prohibit foreign individuals and parties from purchasing non-recreational, residential properties in Canada for a period of two years. This doesn’t apply to people who are already Canadian Citizens, permanent residents, refugees, or international students who are working towards permanent residency, and individuals on work visas who are living in Canada. Non-Canadians who own homes that are left vacant or underused will be subject to the Underused Housing Tax once it has taken effect.
Budget 2022 also includes a proposal to crack down on residential property flipping which is set to apply to residential properties sold on January 1, 2023 or later. Any person who sells a residential property they’ve held for less than 12 months is considered to have been flipping properties and therefore will be taxed like business income on their profits. There are exemptions that one can apply for in certain circumstances which include serious illness, death, disability, change in employment/work location, birth of a child, separation, or divorce.
Finally, housing affordability was at the top of the list for the Federal Government. There are numerous measures aimed to take on the housing affordability problem which is mainly focused on tax measures. However, a non-tax measure to take note of is the federal review of large corporate ownership of residential housing which is supposedly to target real estate investment trusts (REITs). The details on the review should be announced in the coming months with implementation dates to be released before the end of 2023.
Overall Budget 2022 has several propositions to help overcome the multitude of housing problems that have become far more evident over the past couple of years. With aims at better housing accessibility and affordability, programs to help first time home buyers, and crack downs on foreign residential ownership and property flipping, the Federal government’s intentions might help make Canadians’ lives easier when seeking to purchase a residential property.
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