2022: A Year of Change for Toronto Housing - What to Expect in 2023
January 6, 2023
In 2022, all levels of government have introduced many new tax laws and legislation. Here is a summary of what is most important to be aware of.
Federal Changes
Anti Flipping Tax:
Resale:
Under new tax laws, anyone who sells a property that they owned for less than 1 year will be deemed as having "flipped" the house. The profits from the sale will be taxed as business income. Not capital gains, business income.
What to Expect: Not a lot of investors flip homes in less than a year. construction projects typically take 1-2 years. The housing market is not appreciating the way it use to. It is unlikely this scenario will impact many investors.
Pre-construction:
Assignors are now obligated to pay HST on their profit of the sale of a pre-construction home. In the past HST liability depended on an individual's intentions when purchasing the home. If the purchaser’s true intentions were to live in and use the property, then there would be no HST liability. Going forward, your intentions no longer matter. The government deems assignments as commercial activity and HST applies to all assignment sales.
What to expect:
Higher interest rates have made qualifying harder today. I expect this will force some precon buyers to have to assign the units they bought several years ago. It’s important to consider all your options If you need to sell a precon home you purchased. Be aware of the tax consequences, and handle the transaction with care. If you have any questions, don't hesitate to call me.
Looking to buy? Don’t shy away from assignments. I am seeing some great assignment deals. Precon units from builders are selling at $1450/ sqft on average, while you can find assignment deals from $1,000-$1,100/ sqft. The challenge is that you have to be able to get a mortgage soon. Assignment is the better value. Here is a sample assignment deal at $1,060/sqft at Rosedale on Bloor. If you are interested in receiving more assignments (click Here).
Foreign Buyer Ban:
Non-Canadians are prohibited from purchasing a home in Canada for a period of two years, with some exceptions for international students and temporary residents. Any individuals or businesses that break this ban may be fined up to $10,000 and may be required to sell the property in question.
What to expect: Many home buyers in Canada are new immigrants and their down payments do come from abroad. “foreign buyers” as defined by the legislation has not been an issue when it comes to Canada's housing shortages. This new two-year ban feels more like a political stunt than a meaningful solution.
Provincial Changes
More Homes - Built Faster Act
This new legislation would permit the construction of up to three units on a single residential lot such as a basement apartment, garden or laneway house, duplexes, and triplexes, without any bylaw amendments or municipal permissions. These units would be exempt from development charges and parkland dedication fees. Municipalities cannot impose restrictions on unit sizes or require more than one parking space per unit.
What to expect: As an investor, this is something to be excited about. It is now a lot easier to build additional units on a single residential lot for rental purposes, without having to worry about additional costs or restrictions set by municipalities. This would lead to increased profitability and a better return on investment. With rent prices up, we expect many people will take advantage of this opportunity to make more rental income.
Do you want to take advantage of this opportunity, to buy a detached home and add units to it to rent out? I’ve built several homes and can help you navigate this process, if you are interested.
Here is an excellent option of a house you can do this with:
This is a 2 story home with potential for a basement suite and a an added laneway suite for $1 Million located at Dufferin and St. Clair.
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Municipal Changes
Toronto’s Vacant Home tax
Toronto residences that have been classed as vacant for more than six months in the year prior will be subject to a Vacant Home Tax of one percent of their Current Value Assessment (CVA). For instance, if the CVA of a residence is $1,000,000, then the Vacant Home Tax amount due would be $10,000 (1% x $1,000,000). The tax is dependent on the occupancy status of the home in the previous year.
With rent prices up 20%, and home prices down 20% there has never been a better time to invest in multiplex rental investments in Toronto.
Here are a few multiplex investments you may like.
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What’s coming in mid 2023!
The First Home Savings Account (FHSA) that’s Tax Free
This is like an RRSP. You can put away $40,000 tax free and contribute the savings towards the down payment of a home you plan to purchase. The best part is you can use this as well as the RRSP Home Buyer’s Plan where you can withdraw $35,000 tax free towards the purchase of a home. This means collectively you have $75,000 towards your down payment!
This applies to first time home buyers. But it does not mean someone that has never bought a home before! Keep in mind, you are considered a first-time home buyer if, in the four year period, you did not occupy a home that you owned, or one that your current spouse or common-law partner owned.
Hope this was helpful and happy 2023!