This year the federal government, the provinces and municipalities have introduced a number of new measures designed to get more housing on the market and reduce price pressures.
Part 1 of this report focused on the federal foreigner buyer restrictions that took effect January 1st.
Part 2 examines a number of other new measures.
Underused Housing Tax
Along with the new foreign ownership restrictions Ottawa is targeting non-Canadian and non-resident owners with an Underused Housing Tax. (Some Canadians and permanent residents could also be required to pay.) Again, the hope is to free-up vacant, or mostly vacant, residential properties for Canadians who want a permanent home.
The tax is a national 1% levy on the value of the vacant or underused property. The tax came into effect in January of 2022 so anyone required to pay it will have to file a UHT return by April 30th, this year.
The definition of an “underused” varies across the country and there are several exemptions, including recreational and season properties, and properties that are inaccessible due to hazard.
Cities Taxing Vacancies
Municipalities are also implementing Vacancy Taxes for 2023. Toronto and the City of Ottawa are levying a 1% tax on the assessed value of homes that are left vacant for more than half the year. Hamilton has said it intends to implement a similar tax for 2024. The cities hope to encourage the owners of such properties to put them on the market in an effort to increase housing supply. Vancouver has had a vacant house tax since 2017. It is set to rise to 5% this year.
Targeting “Flippers”
Another measure the federal government is taking to dampen demand and, hopefully, ease prices is a new tax structure for sellers who are “flipping” homes.
Owners who sell a home less than 12 months after taking possession will be deemed to be flipping. Any profit will be taxed as business income, rather than as a capital gain. There are exceptions for circumstances such as divorce or a death.
Beyond Taxes
Not all of the measures involve punitive taxes to curb housing demand. The federal government has also launched programs to help with housing affordability.
The First Home Savings Account lets certain buyers to save up to $40,000 to put toward the purchase of a home. It allows for a maximum contribution of $8,000 a year for 5 years. Contributions are tax deductible and withdrawals that go toward the purchase of a house are tax free. The FHSA is not restricted to first-time buyers. Anyone who has not owned a home for 4 years or more can also take advantage of the program.
Another federal program provides some tax relief for homeowners who build a secondary housing unit on their property, through the Multigenerational Home Renovation Tax Credit.
The program offers a one-time, 15% tax refund for renovation costs up to $50,000 for a secondary unit with a private entrance, kitchen, and bathroom. Finance Canada says the refundable tax credit amounts to a maximum of $7,500. To be eligible, the resident of the renovated unit must be a family member who is a senior or an adult with a disability.
However, even supporters of the program admit it is a small step that is unlikely to trigger an upsurge of secondary housing units, which can cost as much as $500,000.
And a Couple of More Things
Other levels of government are taking steps to increase housing supply.
The Province of Ontario recently passed the More Homes Built Faster Act. It freezes or reduces government fees, particularly on affordable and not-for-profit housing, and purpose-built rentals. The act raises the Non-Resident Speculation Tax rate to 25 per cent – the highest level in the country, and includes new consumer protection measures for homebuyers.
In Nova Scotia, the Halifax regional government has voted to drop minimum dimension requirements for single-unit homes, clearing the way for so-called “tiny homes”. It has also done away with restrictions on shipping container and mobile homes in an effort to increase the housing stock and boost affordability.