The federal government has introduced several changes to taxation┬аand tax benefits for this year тАФ and┬аexperts tell┬аCBC News the tax changes related to housing are the ones to watch.
A First Home Savings Account (FHSA), an increased tax┬аon home-flipping┬аand a tax on unused or underused housing are among the new┬аmeasures now in effect.
First Home Savings Account
The FHSA allows certain┬аhome buyers to save up to $40,000 toward a home purchase,┬аwith a maximum annual contribution of $8,000┬аover five years. Contributions to the FHSA┬аare tax-deductible┬аand withdrawals to purchase a home are tax-free.
Hugh Woolley, a Vancouver-based chartered professional accountant, said it’s important to note that the FHSA isn’t just for first-time home buyers. Those looking to buy a home who haven’t owned one┬аfor four┬аyears or more are also eligible.
“So this can also be for people who are re-entering the housing market, who’ve been out of the housing market for a number of years,” Woolley said.
Another new tax benefit related to housing is the Multigenerational Home Renovation Tax Credit.
The refundable tax credit will provide up to $7,500 “in support for constructing a secondary suite for a senior or an adult with a disability to live with family members,” Finance Canada said in an email.
Eligible families can claim 15 per cent of a maximum $50,000 in home renovation and construction costs to build a secondary housing suite.
New taxes on home-flipping, vacant┬аhousing
The government brought in a new rule in Budget 2022 which has effectively increased taxes on home-flipping.
The change means the government will assume anyone who sells a home after possessing it for less than 12 months will be considered to be flipping the property. Profits from the sale would be considered┬аbusiness income, not a capital gain.
Dan┬аRogozynski, co-director of the University of Waterloo’s masters of accounting program, said the government hopes the measures will help┬аslow rising housing prices in Canada.
“They don’t like this flipping, because what happens is it creates demand, it inflates prices,”┬аRogozynski said.
But the change┬аcomes with┬аa number of┬аexceptions, such as┬аselling a home because of a death or divorce.
Woolley┬аsaid home-flippers┬аwill likely look for ways┬аto get around paying the tax.
“I think there’s going to be a lot of people who do sell within a year [and] are still going to┬аbe able to come up with some reason as to why these rules don’t apply to them,” he said.
The government is┬аalso introducing┬аan Underused Housing Tax┬а(UHT).┬а
“The UHT is a national, annual one per cent tax on the value of vacant and underused residential property in Canada owned directly or indirectly by non-resident, non-Canadians,” Finance Canada said in an email.
Any non-resident or non-Canadian┬аwho owns an underused or vacant residential property in Canada as of December 31, 2022 will have to file a UHT┬аreturn for the property by April 30, 2023.
There are a number┬аof exceptions to the UHT. They include exceptions for seasonal properties and properties made┬аinaccessible by a hazard.
Woolley said the range┬аof exemptions to the UHT┬аis notable.
“I think that one of the dangers in these rules is the more exemptions you provide,┬аthe more the┬аtax planners and the clever, crafty people are going to say, ‘Well, this is the way you get around these rules,'” Woolley┬аsaid.
Rogozynski said it’s likely the tax will increase in the next few years.
“I can’t see why over time that rate wouldn’t┬аgo up from 1 per cent,┬аto 2 per cent,┬аto 3┬аper cent, because┬аthey’re nameless, faceless foreigners. They don’t vote,” he said.
Other changes
The federal government indexes personal income tax brackets┬аand many tax benefits to inflation. They’ll increase by 6.3 per cent this year, says┬аthe Canada Revenue Agency.
Rogozynski┬аsaid it’s a far higher jump than usual.
“This is triple what you would normally see across the last 40 years,” he said.
“So pretty well everybody who is in Canada working now probably has never seen such an indexation factor going on.”
The Basic Personal Amount, the amount of income┬аexempt from tax, has┬аincreased to $15,000 this year, up from 14,398 in 2022.
Rogozynski┬аsaid that, overall, tax changes this year are modest.
“There may be a recession [in 2023].┬аThat’s not the time to introduce a bunch of big new increases,” he said.
