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Federal housing measures: What to watch for in the new year

Here are the main housing measures introduced by the Government of Canada that will come into effect in 2023. Please note that this list is not exhaustive. For all the details, consult the 2022 Federal Budget and the First-Time Homebuyers’ Incentive (FHBI).

On your marks, get set, contribute! 

As of April 1, 2023, individuals will be able to open a new Tax-Free Savings Account for First-Time Home Buyers (TFSA). This new tool, introduced by the federal government in its last budget, will allow future first-time homebuyers to save up to $40,000 tax-free, with a maximum annual limit of $8,000.

The main advantage of the TFSA-APP, unlike the Home Buyers’ Plan (HBP), which will continue to exist, is that the individual will not be obliged to “pay it back”. With the HBP, an individual must repay his or her RRSP by the amount withdrawn over a maximum period of 15 years. There is no such obligation for the TFSA. Another difference is the maximum withdrawal amount. The HBP allows for a maximum withdrawal of $35,000, which is not the case with the TFSA, where all of the amounts contributed and the returns they have generated can be withdrawn.

Finally, it will be possible for an individual to transfer funds already accumulated in his or her RRSP to the TFSA without any tax consequences, subject to the $8,000 per year and $40,000 lifetime limit. If an individual has not used the funds in his or her TFSA for the purchase of a first qualifying property within 15 years of opening the account, the account will have to be closed.

No more quick purchases and resales

Also, effective January 1, an important new rule will take effect to limit real estate speculation. Under this rule, a person who sells a property that he or she has owned for less than 12 months will be subject to full taxation on the profits as business income. Exemptions will apply, however, for Canadians who sell their homes due to certain life circumstances, such as death, disability, the birth of a child, a new job or divorce. This measure will apply to residential properties sold on or after January 1, 2023.

Restrictions on foreign investors

Also on January 1, 2023, the Non-Canadian Residential Real Estate Prohibition Act will come into force for a period of two years. Non-Canadians” are defined as persons who are not Canadian citizens or corporations incorporated otherwise than by federal or provincial law. Residential buildings are defined as single-family homes, condominiums, and buildings with three or fewer dwelling units. The maximum fine for an offence under this Act is $10,000.

First-Time Homebuyer Incentive Extended

To help Canadians buy their first home, the government has extended the First-Time Home Buyers’ Incentive (FHBI), administered by CMHC, until March 31, 2025. The First-Time Homebuyer’s Loan allows first-time homebuyers to obtain a loan of 5% of the purchase price for an existing home or 5% or 10% for a new home. The loan bears no interest, no obligation to make regular principal payments and can be repaid in full at any time without penalty.

The incentive is repayable after 25 years or upon sale of the property, whichever comes first. Upon repayment, the borrower must pay back a percentage of the market value of the home equal to the original incentive (i.e. 5% or 10%), up to a certain maximum.

To qualify, in addition to being a first-time homebuyer, the total annual household income must not exceed $120,000 and the amount borrowed cannot exceed four times that income.

New tax credit for the renovation of multigenerational housing

Finally, under a new tax credit for the renovation of multigenerational dwellings, an individual will be able to benefit from a refundable tax credit of up to $7,500 for the construction of a secondary dwelling to enable an elderly person (65 years of age or older) or an adult with a disability to live with a relative. An eligible relative is a parent, grandparent, child, grandchild, brother, sister, uncle, niece or nephew (including the spouse or common-law partner of any of them) who will ordinarily reside in the secondary suite. Eligible work includes renovations, alterations or additions that create a self-contained second dwelling unit (within the home) with a private entrance, kitchen, bathroom and sleeping space. Eligible expenses would include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits.

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