Ottawa to close tax loopholes to help cool red-hot housing market
TORONTO, ON. (NEWS 1130) – It’s another attempt by a level of government in this country to help ease the real estate woes some people are facing.
Federal Finance Minister Bill Morneau has announced changes he hopes will bring a sense of reality to our housing market. He says Ottawa is going to tighten rules around mortgages and close a series of tax loopholes around principal residences that some experts say have been abused by foreign buyers.
The federal government is looking to end a long-standing exemption allowing non-residents to buy homes and later claim a tax exemption on the sales of those properties. That exemption will reportedly now only be available to those who live in Canada in the same year they buy the property.
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The changes specifically focus on the two red-hot real estate markets in the country: Vancouver and Toronto.
“People are concerned about the state of the housing market. Across the country, many middle-class families looking to buy their first home see prices climbing often out of their reach. Some are taking on high levels of debt in a rush to buy before it’s too late. Those who already own their homes want to know that the market is stable and that their most important investment is safe,” says Morneau.
“Affordability is an issue that concerns many middle-class families, particularly in Toronto and in BC’s Lower Mainland. Federal government policy alone cannot control house prices, certainly not directly, but it does have a role in ensuring housing markets are stable and functioning efficiently.”
Some of the changes rolled out by Morneau will go into effect as early as this month. “Effective October 17th, 2016 — all new insured mortgages will need to undergo a mortgage-rate stress test by lenders that’s more robust than what is currently applied. This includes fixed-rate mortgages with terms of five-years or more that were previously excluded from this requirement, ” adds Morneau.
Effective November 30th of this year, mortgages loans that lenders insure using portfolio insurance and other low-loan-to-value ratio mortgage insurance, will need to meet loan eligibility criteria that previously applied to highly-leveraged insured mortgages.
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He points out the changes will involve slight changes to mortgages. “These measures will apply to new mortgage insurance applications and will not affect Canadians with existing mortgages.”
Morneau says Ottawa is trying to look far into the future. “Today I’m announcing complimentary measures designed to bring greater consistency to mortgage rules, reduce risk for taxpayers and ensure everyone is playing by the rules. I’ve asked my officials to examine whether the distribution of risk in Canada’s housing finance system is balanced.”
Moments before his news conference, the federal government tabled a motion in the House of Commons to close tax loopholes for principal residences that some experts say have been abused by foreign buyers. “We will insure that the principal residence exemption is available only to Canadian residents and that families are able to designate only one property as the family’s principal property for any given year. We’ll also ensure that the Canada Revenue Agency is able to assess income tax owing in cases where taxpayers to not report the sale of a property as required under the tax rules. ”
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He adds the Canada Revenue Agency is conducting audits in relation to real estate property transactions across the country and that includes those in the Lower Mainland. Ottawa is also announcing a consultation this fall on lender-risk sharing.
Ottawa’s move comes two months after the provincial government announced a 15 per cent foreign buyers tax to help cool Metro Vancouver’s hot real estate market. And a report released just last week by Swiss bank UBS warned Vancouver is at greatest risk of a housing bubble in the world.