In a move which many Canadians, especially those who have been persistently priced out of the housing market, welcomed with open arms, overnight Finance Minister Bill Morneau unveiled new measures aimed at slowing the flood of foreign money pouring into overheated housing markets like Vancouver and Toronto, a move which some dubbed an unprecedented federal intervention in the sector.
As first reported by the Globe and Mail, Ottawa announced it would close a tax loophole that allows non-residents to buy homes and later claim a tax exemption on the sales.
According to the revision, the government will make sure the principal-residence exemption is only available to individuals who reside in Canada in the year the home is purchased, which immediately excludes thousands of “hot money” Chinese tourists who come to Canada simply to park billions in Chinese cash.
The Ottawa shift comes after home prices soared dramatically the last few years in the Vancouver and Toronto markets, triggering a vigorous debate about the role of foreign money. As reported in the summer, British Columbia imposed a 15-per-cent foreign buyers tax on homes which led to a dramatic cooling in the Vancouver housing market. Just today we learned that Vancouver home sales had plunged another 32.6% relative to a year ago as the market remains paralyzed as a result of a lack of buyers willing to chase near record prices.
The finance minister also announced new measures to combat offshore speculation, including closing the loophole. The moves follow a Globe and Mail investigation that revealed a network of speculators flipping homes for profit and avoiding taxes by classifying them as principal residences. Under the Canadian tax code, homeowners do not have to report the sale of any property that they designate their principal residence, and do not pay tax on the increased value – or capital gains – of that home. In order to make that designation, a homeowner, their current or former spouse or any of their children must have lived in it at some time during the year for which the designation is claimed.
