There were some game-changing moves made last year that will surely impact Ontario homebuyers in 2018. Here are five that you should know about:
Principal home sales must now be reported to the CRA
A capital gains tax rule introduced in October 2016 caused new headaches this tax season, as the Canada Revenue Agency now requires reporting the sale of principal residences on tax returns.
While principal residences are still exempt from the 50% capital gains tax, details of the transaction – including the home’s address, year purchased and final sale price – must now be included on tax return forms.
The requirement applies retroactively to all 2016 sales, as well as those moving forward, and there are steep consequences for those who try to shirk the rules: you could lose your exemption altogether and be required to pay the tax as well as be fined $100 per month, up to a maximum of $8,000, for every month you do not report the sale.
In the process of introducing the requirement, the CRA has also closed a reporting loophole often used by foreign buyers: homeowners must physically reside in their homes in order to claim the exemption, rather than just have a family member or spouse dwell there.
As a next step, the CRA is also cracking down on sellers of pre-construction homes sold on assignment; because “flipped” property sales records are not public, and because the sale occurs before a title is registered, there are concerns such investors are avoiding capital gains tax on assignment units. To look into the issue, the CRA has demanded the records from 2,800 Toronto-based developers, with plans to do so in Vancouver as well.
Tarion ousted as new construction regulator
Greater protections were introduced for purchasers of newly-built homes, as the longstanding regulator had its status stripped by the province after complaints of negligence and conflict of interest.
Tarion New Home Warranty Corporation will no longer oversee the new construction and development industries in Ontario, nor will it act as adjudicator in disagreements between developers and consumers. It will, however, remain the provider of warranties against defects in new builds.
Tracy MacCharles, the Ontario Consumer Services Minister, said the province was reacting to criticism that more oversight of Tarion was needed – as roughly half of its board was made up of the developers it was intended to regulate, the potential for conflict of interest was high.
“Tarion’s multiple roles and responsibilities can give rise to a perception of conflict of interest, and could result in an actual conflict or conflicts of interest,” she stated. “The new home building sector is an important driver of Ontario’s economy and, quite frankly, I believe it deserves a stand-alone regulator.”
The province will create a new entity to regulate the industry, as well as counter consumer complaints about the current warranty claiming process. The warranty program has also been expanded to include upgrades and amenities, as well as increasing payout amounts by 10% from the previous $40,000 to a minimum of $60,000 and a maximum of $100,000 to better reflect the rising cost of real estate in the province.
The Fair Housing Plan
While real estate prices in the Greater Golden Horseshoe (GGH) have been steadily increasing over the past five years, they were on an absolute tear in the first half of 2017; a revelation from the Toronto Real Estate Board (TREB) that home values had spiked 33% year over year drew the concern of federal Finance Minister Bill Morneau, prompting him to meet with his provincial counterpart Charles Sousa as well as Toronto mayor John Tory.
What followed was a policy bombshell, as Premier Kathleen Wynne announced the Ontario Fair Housing Plan on April 20, 2017 – a package of 16 measures designed to cool the runaway real estate market.
Included were two major regulations: a foreign buyer tax as well as sweeping rental protections.
The 15% Non-Resident Speculation Tax took effect immediately, and applies to non-permanent residents, non-citizens, as well as non-Canadian corporations purchasing residential real estate within the GGH. Those who become a permanent resident or citizen, or are enrolled in a full-time, two-year post-secondary course within four years of their home purchase, are eligible for a full rebate of the tax.
New rent controls abolished the existing two-tiered rules, which subjected units built prior to 1991 to a rent increase cap while landlords of newer units could hike rents as much as they wished upon renewal. Now, all landlords must adhere to the annual provincial increase guideline when upping rent (currently 1.5%), or apply to the tribunal with a valid reason should they wish to hike it further.
They will also be required to compensate tenants with one month’s rent when evicting them for personal use of the unit. They must then prove the unit is occupied by themselves, a family member, or spouse for a full year following, or face hefty fines.
To incentivize developers to create more rental-purpose units, the province also announced $125 million in development rebates, as well as freeing up surplus lands for the creation of affordable housing.
The B-20 mortgage rules
Unfortunately for mortgage borrowers, a new policy introduced this year will make it harder to get home financing in 2018. Guideline B-20, a new measure implemented by the Office of the Superintendent of Financial Institutions (OSFI), will require all new applicants paying a minimum of 20% down be stress tested.
This means, in order to qualify for a mortgage, these borrowers must prove they could carry monthly payments at either the Bank of Canada’s qualifying rate (currently 4.99%), or 2% tacked onto their contract rate – whichever is higher.
Experts say these changes will have deep implications for buyer affordability, chopping budgets by as much as 20%, and knocking up to 10% of prospective purchasers out of the housing market altogether.
Buyers who pay less than 20% down (also referred to as high-ratio borrowers) have been stress tested since October 2016. However, while that restriction predominantly affected the first-time buyer segment, this latest round will have implications for move-up buyers as well as those helped out by the “Bank of Mom and Dad.”
Rather than squeeze into the low-ratio threshold with a parental gift, all buyers must now prove they could handle higher payments should rates theoretically rise.
Further compounding the mortgage misery will be anticipated rate hikes from the Bank of Canada, to accompany its increases in July and September of this year. While its trend-setting Overnight Lending Rate (which is used by lenders as a base to price their variable lending products) is currently 1%, economists are calling for two more this year, to 1.5%.
This double whammy of tougher qualification and pricier debt will result in buyers saving longer for larger down payments, downsizing their housing expectations, or fuel the urban exodus to cheaper real estate in the suburbs, experts say.
The National Housing Strategy
On November 22, 2017 – also known as National Housing Day – the federal government announced its $40 billion National Housing Strategy, a “once-in-a-lifetime initiative” designed to improve accessibility to affordable housing to the nation’s most vulnerable.
First teased in the Liberal’s federal budget in March, the 10-year plan will kick off a number of goals including:
$15.9 billion for the National Housing Co-Investment
$4 billion for the Canada Housing Benefit, which will provide an estimated $2,500 to 300,000 low-income households, to be launched in 2020
$2.2 billion for the Homeless Partnering Strategy
$9.1 billion for Community Housing Initiatives
$2.5 billion for a federal-provincial-territorial housing partnership fund
$9.8 billion for existing agreements
It will create 100,000 affordable housing units across Canada, renovate an additional 300,000, and remove 530,000 households from core housing need.
However, a number of affordable housing advocates say the plan falls short, failing to address the affordability challenges of the middle class who are facing some of the highest real estate and rental costs in recent memory, as well as extremely tight rental vacancy.
Said Jim Murphy, CEO of the Federation of Rental Housing Providers of Ontario, “We’re increasingly concerned that those in the middle, who probably wouldn’t qualify for most of these programs, are still facing hardship. They can’t afford to own with an average price of $1.3 million (for a detached resale house in Toronto in October). Increasingly, rent is becoming difficult, not only in terms of price but in terms of supply and finding a place.”
Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that combines online search tools and a full-service brokerage to empower Canadians to buy or sell their homes faster, easier and more successfully. Home buyers can browse Toronto real estate listings, as well as the Hamilton real estate market, including detached homes, townhomes, and condos in Hamilton.