Staff, with files from The Canadian Press / October 3, 2016
The federal government has unveiled measures intended to cool the real estate markets.
Finance Minister Bill Morneau said the federal government will make it so only people who were living in their home as a principal residence before the home was sold are eligible to claim the principal residence exemption.
The change to the capital gains exemption has tax implications:
Those not resident in Canada in the year they acquire a residence will not — on a disposition of the property after October 2, 2016 — be able to claim the exemption for that year.
Trusts will be eligible to designate a property as a principal residence for a tax year that begins after 2016 only if the trust is a spousal or common-law partner trust, an alter ego trust, a qualifying disability trust or a trust for the benefit of a minor child of deceased parents. In addition, the trust’s beneficiary who, or whose family member, occupies the residence for the year will be required to be resident in Canada in the year, and will be required to be a family member of the individual who creates the trust.
To claim the exemption, taxpayers must provide basic information on their income tax return for that year. In addition, the CRA will be explicitly authorized to accept late-filed principal residence designations.
A proposed measure provides the CRA with authority to assess taxpayers for a disposition, beyond the normal assessment limitation period for a tax year, when the disposition is not reported on the taxpayer’s tax return that year. In the case of corporations or partnerships, the proposed measure applies only to capital property.
More details are available on the CRA’s website.
The federal government will also bring in a more rigorous mortgage-rate stress test for all insured borrowers in an effort to make sure borrowers can sustain interest rate hikes or income losses, Morneau said.
Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance in accordance with either their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate (4.64%) — whichever is greater. (Those with an existing insured mortgage or those renewing one are not affected.)
According to RateHub.ca’s mortgage affordability calculator, a family with an annual income of $100,000, estimated property tax of $400 and month heating costs of $150 a month, with a down payment of $40,000 at a mortgage rate of 2.17%, can currently afford a home worth $665,435.
Under new rules, they qualify at 4.64%. They can now afford $505,762 — a difference of $159,673 (24% less).
Originally published on Advisor.ca