Canada's 2022 federal budget won't make housing more affordable
Among other things, the federal Liberals announced a new tax-free savings account and doubled the First-Time Home Buyers’ Tax Credit. While these new measures may support more homeownership, it may be a stretch to say they will make housing more affordable.The introduction of the Tax-Free First Home Savings Account is arguably the most significant proposal. Come 2023, residents of Canada will be able to open an FHSA.
Most people who are saving for a home don’t want to put their money into any risky investments since they’ll need it in the near future, so any capital gains or interest earned will be minimal. Even if you were to be more aggressive with your investment strategy, there’s no guarantee that you would even keep pace with the year-over-year increase in real estate prices.
Also, if you don’t owe income tax the year you buy the home, you don’t get anything since the HBTC is a non-refundable tax credit.As part of the new budget, foreign buyers will be banned for two years. In theory, this sounds good. Presumably, it will mean fewer buyers in the future and more homes available for Canadians.
A few provinces in Canada, such as Ontario and B.C., already have a foreign buyer tax of 20 per cent. Despite the tax, the average home selling price in the Greater Toronto and Vancouver areas is over $1.3 million. An outright ban on foreign buyers probably won’t do much.Under current rules, when you sell your primary residence, all of the gains are tax-free. If you sell an investment property, you’re paying a capital gains tax of 50 per cent.
Currently, when buying a pre-construction home, you’re technically purchasing a contract. You can assign that sales contract to another buyer at a higher price before the home is finished. This is known as an assignment sale. You could basically profit from this sale without ever taking possession or moving into the home.
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