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Housing affordability is a huge issue right now. Certain real estate markets across the country have sky-high housing prices that the average Canadian can’t afford. 

Things like foreign investment, house flipping, and assignment sales are some of the more prominent factors that are driving home prices up. But the federal government is taking steps to deal with this ongoing issue.

Let’s take a look at the new housing rules, that are part of the 2022 federal budget, designed to ease housing affordability.  

Banning Foreign Investors 

Foreign buyers have been purchasing properties in Canada for years, fueling housing demand and driving up home prices. Nowadays, housing prices in city centers like Toronto and Vancouver are soaring, partly due to foreign investors in the real estate market. As such, many Canadians are being priced out of their own housing markets and are finding it nearly impossible to afford a home.

To counter this, the federal government will take measures to significantly restrict foreign investments in the Canadian real estate market. More specifically, Budget 2022 includes stipulations that would prohibit buyers who are not Canadian citizens or permanent residents from purchasing properties in Canada for two years.

Exemptions To The New Rule

However, there are exemptions to this rule. For instance, refugees and others who are authorized to come to Canada under emergency orders are exempt from these restrictions. Other exemptions include international students who will eventually seek permanent residency in certain circumstances, as well as people in Canada on work permits.

Cracking Down On Unused And Empty Properties 

In addition to the above restrictions on foreign investors, non-Canadians and non-residents who own properties that are rarely used or vacant would also be subject to the Underused Housing Tax, if passed. This would involve an annual 1% tax on Canadian residential properties that are owned by non-Canadian citizens or non-permanent residents unless exempted.

New Rules For Property Flipping

There are a few ways to profit from real estate investing, and flipping homes is one of them. 

What Is Property Flipping?  

Flipping properties involves purchasing a property in need of some updating, fixing it up to bring it up to par, then selling it shortly after at a significant mark-up. 

While this may be a profitable business model, it can also lead to much higher home prices. And although some house flippers may be conducting business in a legitimate manner, others might improperly report their gains when filing their income taxes to pay less tax.

What Are The New Rules? 

To deal with this issue, Budget 2022 includes new rules that will ensure that any profits that house flippers earn are taxed fully and properly. More specifically, the new rules stipulate that the sale of a property owned for less than 12 months would be considered a flip, with all profits subject to full taxation as business income. 

These rules have been created to ensure that real estate investors who flip properties pay their fair share of taxes on their profits while protecting those who own and use their properties as homes.

Does This Rule Apply to Everyone? 

There are some exemptions that apply. For instance, anyone who sells their home because of certain situations, such as death, disability, divorce, or a new job, for example, would be exempt. 

These rules apply to residential properties sold on or after January 1, 2023.

Taxing Assignment Sales

In addition to foreign buyers and house flipping, speculative trading of real estate in Canada can also contribute to skyrocketing home prices. Like stocks or other investment products, some investors use housing as commodities to trade in an effort to earn a profit. But this can send prices higher, leaving the average Canadian priced out of their market.

What Is An Assignment Sale? 

Speculative trading involves the resale of properties before they have been built or lived in, otherwise referred to as an “assignment sale.”

Right now, GST/HST may or may not apply to an assignment sale, depending on the reason for buying the home. For instance, a buyer wouldn’t be subject to GST/HST if the original intention was to live in the home.

Those looking to profit from assignment sales may be dishonest about their initial intentions. The current rules can also cause confusion when it comes to how GST/HST applies to the full and final prices of new homes.

Assignment Sales New Tax Rule 

To counter this issue, Budget 2022 would require all assignment sales of newly built or significantly renovated homes to be considered taxable for GST/HST purposes. If passed, this would take effect on May 7, 2022.

Other Initiatives Being Taken To Make Housing Affordable

The Canadian government is taking other measures to deal with the housing affordability issue in Canada:

Cracking Down On Money Laundering 

Over the recent past, there’s been an increase in the number of mortgages issued by lenders who are not regulated by Canada’s anti-money laundering and anti-terrorist financing rules that other financial institutions are subject to, like banks. Buyers who over-leverage themselves and sign loan contracts with unregulated lenders could put themselves at increased financial risk. 

To prevent potential financial crimes in the housing sector, the Canadian government intends to extend these rules to all businesses offering mortgages over the next year. This extended reach of the rules is intended to reduce the ability of criminals to exploit Canadians in real estate transactions. In turn, this may help improve housing affordability issues in Canada.

Ending Blind Bidding 

“Bling bidding” involves asking buyers to waive a home inspection when they purchase a home. These are unfair practices that can make the process of purchasing real estate even more stressful. 

The Canadian government intends to deal with this issue by ensuring that the buying process is more transparent and fair. To do this, the Minister of Housing and Diversity and Inclusion will work with provinces and territories to come up with a Home Buyers’ Bill of Rights and a plan to put a stop to blind bidding. 

The Home Buyers Bill of Rights may also ensure that buyers have a legal right to have a home inspection conducted and that the history of previous sale prices and title searches is fully transparent.

Reviewing The Effect Of Big Corporations

Residential properties are intended for Canadians to use as homes, and not for corporations to make a profit. But over the recent past, the spike in housing prices has led to investors with significant capital buying more residential housing. 

As more and more corporations acquire residential homes, the cost of housing would increase even more, both in terms of buying and renting. This can also have a negative impact on smaller landlords. 

To deal with this issue, Budget 2022 will involve a review of housing as an asset class to gain more insight into the role that big corporations play in the housing market. It will also include a review of the effect on average homeowners and renters. 

The government will examine things like possible changes to how large corporate players involved in residential real estate investing are treated in terms of taxation.

Final Thoughts

It’s no secret that home prices are out of reach for many Canadian homebuyers in many parts of the country, for many reasons. But the new rules accompanying Budget 2022 will hopefully counter some of the factors that have been driving home prices up. 

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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