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.

Just Posted

Shamrocks clinch Western Lacross Association playoff berth

Rick Stiebel/News Staff Although the Victoria Shamrocks nailed down a seat in… Continue reading

Saanich council will consider tax reduction scenarios for 2020 budget

Coun. Rebecca Mersereau however warns of cutting additional funding for capital expenditures

Jurors talk about trial of U.S. man convicted in 1987 murders of Saanich couple

Three jurors offer a window into deliberations during the trial

West Shore RCMP arrest man in stolen vehicle, seize handgun

Vehicle was reported stolen from Duncan on July 18

Victoria Police issue warning after man left dangling from raised Johnson Street Bridge

A man bypassed safety measures and became stranded as the bridge lifted

VIDEO: Missing teens named as suspects in three northern B.C. killings

Kam McLeod and Bryer Schmegelsky are wanted in the deaths of Lucas Fowler, Chynna Deese, unknown man

Countdown starts to 2020 BC Summer Games

Two flags unveiled at Maple Ridge city hall.

Memorial bench painted by Vancouver woman to stay in park for now

Park board to look at options for artistic enhancements on commemorative benches

VIDEO: Man found dead near B.C. teens’ truck could be linked to a double homicide

RCMP said they are looking for Kam McLeod, 19, and Bryer Schmegelsky, 18, of Port Alberni

Weather Network’s anti-meat video ‘doesn’t reflect true story’: cattle ranchers

At issue is the video’s suggestion that cutting back on meat consumption could help save the planet

VIDEO: Young couple found dead in northern B.C. had been shot, police say

Chynna Noelle Deese of the U.S. and Lucas Robertson Fowler of Australia were found along Highway 97

Wrestling legend finds his wedding dance groove in B.C.

Professional wrestler Chris Jericho posted on social media that he was in Penticton recently

Coroner investigating after body recovered from Okanagan Lake

Penticton fire department assisted the RCMP with the recovery of a body Saturday

Overdoses overwhelming in B.C. Interior

Part two: Who’s affected by the current opioid crisis

Most Read