The federal government has announced new changes to Canada’s housing regulations as part of a plan to close regulatory loopholes, generate new revenues and force low-income buyers to undergo an affordability assessment.

Capital gains tax on secondary suites
A little reported change in the new housing regulations pertains to homes with secondary suites and capital gains taxes.

Primary residences, when sold, are not subject to capital gains taxation. However, with the Canada Revenue Agency (CRA) now requiring individuals to include the sale of their home on their annual tax return, secondary suites may be assessed as an income generating asset and become subject to the capital gains tax, according to a Victoria real-estate watchdog.

“The issue under contention is that if you have a suite in your home, you are using part of the home to produce revenue which may trigger paying capital gains tax on the suite portion when you sell the home.   We can safely say that the vast majority of Victoria owners have not historically paid capital gains when selling, but is that just because the CRA didn’t have the data to pursue them?” writes Leo Spalteholz, publisher of the House Hunt Victoria real-estate blog.

In other words, if a $760,000, 2,400 square foot home with an 800 square foot secondary suite were sold and the original purchase price had been $400,000, the capital gains tax on the secondary suite component could be $21,000, Spalteholz wrote on VibrantVictoria.ca’s rental industry discussion thread.

Spalteholz goes on to say that regulations pertaining to tax audits and secondary suites are unclear and uncertainty regarding assessment triggers remains.

Mortgage rate “stress test”
Effective October 17th, buyers seeking insured mortgages (below 20% down payment) will be subject to a “stress test” whereby their mortgage repayment strength will be assessed at the Bank of Canada’s posted five-year mortgage outlook rate, currently averaging 4.64%.

As part of the new regulations, buyers will need to ensure their financial situation is resilient enough to absorb significantly higher interest rates than the variable and five-year rates currently offered by Canada’s lending institutions.

The effect of this change means buyers with a low down payment – typically first-time buyers or lower income earners – may be precluded from purchasing a home they had only days prior been eligible for, and may only qualify for a property priced one-fifth or one-quarter lower.

Foreign buyers
The federal government has taken foreign real-estate purchasers to task over primary residences in Canada.

Non-residents are no longer permitted to list Canadian real-estate as a primary residence for the year in which a home was purchased.

The move hopes to thwart a common practice of foreign nationals listing Canadian homes as primary residences and paying no capital gains taxes when selling the property. C

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