By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, May 14, 2024
The 2024 federal budget, announced on April 16 by Deputy Prime Minister and Minister of Finance, Chrystia Freeland, and titled Fairness for Every Generation, focuses on key issues such as housing, affordability, economic growth, and fairness for a younger demographic such as Millennial and Gen Z voters who may be experiencing rising housing costs and other inflationary pressures. The following are some measures that will impact the housing and mortgage market.
• The re-introduction of a 30-year amortization option for insured buyers of pre-construction homes
As of Aug. 1, 2024, the 30-year amortization period for insured mortgages will make a comeback after 12 years. This will only apply to first-time homebuyers who are purchasing a new construction home. Insured mortgages are for purchasers who put less than a 20 per cent down payment and the purchase price is under $1 million. As per the mortgage rules, these insured mortgages require the borrowers to pay for the mortgage default insurance premium. Resale homes will continue to have a maximum of a 25-year amortization period. Since 2012, 30-year amortizations were only available for uninsured mortgages (where the borrower puts more than a 20 per cent down payment).
• Increase to the RRSP Home Buyer’s Plan limit
The amount a first-time homebuyer can withdraw from their Registered Retirement Savings Plan (RRSP) Home Buyer’s Plan is rising from $35,000 to $60,000 per person and the payback period has been extended by three years.
Homebuyers who withdraw funds between Jan. 1, 2022, and Dec. 31, 2025, will have five rather than two years before they must start making repayments to their RRSP’s.
Only a small fraction of buyers even get close to the current $35,000 limit.
• An increase to the capital gains inclusion rate
The budget also unveiled a new tax plan amending the Income Tax Act that introduces higher taxes on capital gains for individuals earning more than $250,000 from stocks or property sales such as investment properties and second homes. The sale of a principal residence will remain fully exempt from any capital gains taxes. This change is to take effect as of June 25, 2024.
Currently, only 50 per cent of capital gains are subject to taxation, while employment income is fully taxed. This new tax plan will continue for the first $250,000 of capital gains, but beyond that threshold, the tax rate will increase to 66.6 per cent. Essentially, the proposal aims to reduce the tax-free portion to one-third for capital gains exceeding $250,000.
Furthermore, this reduced exemption will extend to all business capital gains, regardless of the amount. This anticipated change will boost additional taxes of $19.4 billion in government revenue over the next five years, which is a significant amount.
If you or anyone you know owns investment properties, it might be beneficial to check with an accountant to see if there are any tax-saving strategies that could be implemented prior to June 25.
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