Feds target housing market speculators

Tighter mortgage rules, crackdown on capital gains exemption abuse expected to help tame wild real estate market




The federal government will make it tougher for speculators to profit tax-free from Canadian real estate investments, while further tightening mortgage qualification rules to help avoid excessive risk in the housing market.

The changes announced Monday by Finance Minister Bill Morneau are expected to put further downward pressure on hot housing markets such as Vancouver and Toronto.

Homes sold from now on won’t be eligible for the principal residence exemption from capital gains tax  if the seller wasn’t a resident of Canada in the year they bought the property.

Experts say that should bar foreign investors from using the capital gain exemption and also hit some Canadian citizens who have been abusing the exemption to use real estate as a tax-free investment.

The Canada Revenue Agency will now require taxpayers to report the sale of homes for which they are claiming the principal residence exemption.

NDP housing critic David Eby predicted the federal rule change could have more effect even than the B.C. government’s recent imposition of a 15 per cent foreign buyer tax on residential real estate sales in Metro Vancouver.

“I think there’s a great deal of domestic speculation in the housing market that is totally unaddressed by the foreign buyer tax,” Eby said.

“The reason people are putting money into real estate instead of shares of a company is because they can do so capital gains free.”

He suggested that with CRA auditors poised to take a harder look at potentially phony claims of the exemption, more real estate investors may shift to different investments.

Eby has been among the critics who have flagged cases of homemakers and students buying multi-million-dollar Vancouver-area homes with minimal to no declared annual income.

When those individuals sell a million-dollar home and avoid paying tax on a $300,000 capital gain, he suggested, they’ll be prime targets for “lifestyle audits” by the CRA.

The new disclosure requirement should also help the CRA unravel cases where multiple family members – mother, father and kids – are each declaring different principal residences to dodge capital gains despite a rule that a family could only declare one such property exempt.

Ottawa also unveiled a tightening of rules on mortgage insurance eligibility and a revised mortgage rate stress test that will be applied to all insured mortgages.

The revised stress test means more home buyers will have to have sufficient income to meet their mortgage payments not based on the mortgage rate a bank is offering them but based on the Bank of Canada’s posted rate for fixed five-year terms.

“That can be a two per cent difference in what you qualify for,” said UBC associate economics professor Tom Davidoff, who predicted it will make it considerably harder for buyers who are stretching to afford the biggest payment and mortgage they can get.

“I think the lower end of the market is going to feel it the most.”

B.C. Housing Minister Rich Coleman praised the federal measures.

“They are welcome steps that may help provide further fairness and stability in the market for home-buyers,” Coleman said.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Langford boy wakes up from surgery to find stuffed puppy wearing the same cast

Hospital staff outfitted ‘Eddy’ the puppy to match the young patient

VIDEO: Annual artist studio tour goes virtual on Saanich Peninsula

ArtSea converts popular event to online format with personalized artist videos

Local Flavour: Youth take the lead in Victoria’s Pollinator Leadership Team

Guest writer Thompson Hygge, summer intern with Pollinator Partnership Canada

Flyover at B.C. Leg to commemorate National Peacekeepers’ Day

August 9 marks biggest single day loss of Canadian lives from peace operations

UVic political scientist wants B.C. pulp mills to help produce masks, gowns

Claire Cutler says Canada needs to become self-sufficient when manufacturing PPE

QUIZ: Do you know the truth?

In what has been described as a post-truth era, how much do you know about truth and lies?

Simon Cowell breaks his back falling from electric bike

Incident happened at his home in California

Unofficial holidays: the weird and wonderful things people celebrate around the world

On any given day of the year, there are several strange, silly or serious holidays to observe

Missing teen visiting Courtenay found safe

She had last been seen going for a walk on Aug. 6

Moving on: Tanev scores 11 seconds into OT as Canucks oust Wild

Vancouver beats Minnesota 5-4 to move into first round of NHL playoffs

Fitness non-profit challenges citizens to invent a game to be physically active

The campaign was launched after a study showed only 4.8 per cent of children and youths in Canada met required standards of the 24-hour movement guidelines

Gene editing debate takes root with organic broccoli, new UBC research shows

Broccoli is one of the best-known vegetables with origins in this scientific haze

VIDEO: U.S. Air Force pilot does fly-by for B.C. son amid COVID border separation

Sky-high father-son visit plays out over White Rock Pier

3 Vancouver police officers test positive for COVID after responding to large party

Union president says other officers are self-isolating due to possible exposure

Most Read