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Updates 1 month ago

Taking Stock: Measuring the Impact of the Federal Budget on Toronto's Housing Market

Recently, the Federal government tabled its latest budget, and, although there are no proposed changes to the personal tax brackets, there are several measures – purportedly aimed at building more affordable homes, reducing the cost of living, and growing the economy – that will impact the housing market and, possibly, your real estate portfolio.

The following is a round-up of some of the key takeaways that will affect real estate buyers, sellers, and investors.

Capital Gains Inclusion Rate

One major component of the proposed budget centres around an increase to capital gains taxation. Capital gains, which are profits from the sale of assets like stocks or businesses, would undergo a rate increase from 50% to 66% for individuals on gains exceeding $250,000. For corporations, the increase applies to all capital gains (for businesses, the $250,000 threshold does not apply). The government projects that this adjustment will yield over $19 billion in revenue over four years.

The good news is that primary residences would remain exempt from capital gains tax, alleviating concerns raised by many prior to the budget announcement. However, for Canadians selling non-primary residences such as vacation homes or rental properties, the inclusion rate would apply. These changes, if passed, will affect capital gains realized on or after June 25, 2004. Depending on how this may affect your real estate portfolio, there may be some changes to consider before then.

30-Year Amortization Period

After much speculation about increasing maximum amortization periods in a bid to make housing more affordable, this week’s budget outlined the changes we can expect to see, effective August 1st. The maximum period has indeed been extended to 30 years, up from 25, but with many conditions attached to the change. It would only apply to first-time homebuyers, for example, who are purchasing newly built homes. In dense urban areas like our own, with very scarce new inventory, this change will only affect a very small segment of the population.

Incentives for Secondary Suites

This budget also introduced the Canada Secondary Suite Program, the oversight of which will fall under the Canada Mortgage and Housing Corporation (CMHC). This initiative provides homeowners with access to low-interest loans of up to $40,000 to facilitate the construction of secondary suites in their residences. It will be interesting to see the effect that this initiative has on laneway housing and garden suites. 

Home Buyers’ Plan (HBP) RRSP Withdrawal Limit

To increase access to RRSP funds for eligible homebuyers, the budget proposes raising the HBP withdrawal limit from $35,000 to $60,000. In addition to first-time buyers, this measure would also apply to people with disabilities. As a result of this change, couples purchasing a home together could potentially withdraw up to $120,000 from their RRSPs to buy their first home. Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years. While this change applies to withdrawals made after April 16, 2024, for the 2024 calendar year and beyond, it’s advisable to check with your financial institution as to whether the increased withdrawal limit will be enacted before the budget receives the royal assent.

Apartment Construction Loans

The 2024 budget proposes allocating an additional $15 billion to the Apartment Construction Loan program. Initially launched in 2017, this program aimed to construct a minimum of 30,000 new rental apartments across various urban and rural areas. With the extra funding, it’s estimated that approximately 131,000 new apartments could be added to the Canadian real estate market over the next eight years.

A Mixed Reception

The reaction to the above measures, and to the budget overall, has been mixed to put it mildly. According to the federal government, it represents ““a bold strategy to unlock 3.9 million new homes by 2031,” using a string of measures spread out over the next several years. However, there is skepticism on the part of opposition, pundits, and experts alike about the impact these measures will have for the average Canadian. Jason Mercer from the Toronto Regional Real Estate Board, for instance, reacted by saying, “we need to see policy papers turn into shovels in the ground.”

Regardless of one’s take on the budget from a political or personal perspective, some of the tabled policy changes may have a significant impact on your real estate portfolio. As always, our team of expert advisors is on hand to assist with navigating these changes and can also connect you with our industry-leading financial partners to help. If you have questions or would like to have a more in-depth look at the changes outlined above, we would love to hear from you.

Check out this article on our LinkedIn.