The 2024 Federal budget was the highlight in April. Along with the government spending plan were several proposed policy decisions with direct impacts on Canadian Real Estate. In this special edition of our newsletter, we want to highlight some of these policy decisions and their impact on the market, their benefits, and how to mitigate potential risks with which market participants are faced as a result of the changes.
1. Capital gains: Inclusion rate up from 50% to 67%.
Under the proposal, the inclusion rate for annual capital gains realized above $250,000 for individuals will be taxed at a rate of two-thirds, up from the current 50 percent. Any gains under that bar would continue to be taxed at the 50 percent rate. The proposed change, if adopted, would come into effect on June 26, 2024.
What does this mean for Canadian Real Estate owners and investors who have accrued significant gains on their real estate portfolio?
- Gains from the disposal of primary residences remain exempt from capital gains.
- Non-exempt capital gains under $250,000 will continue to be taxed at an inclusion rate of 50%.
- Capital gains in excess of $250,000 will be taxable at an inclusion rate of 67%.
Homeowners or investors curious about avoiding exposure to increased tax on their gains, as illustrated in scenarios 3 & 4 below, may want to sell the property, ensuring such a sale closes on or before June 26, 2024, or continue to hold the property in the hope that the suggestion by some political commentators that this policy may be reversed if the Liberal Party of Canada does not form government after the next election in October 2025.
2. First-Time Homebuyer Programs The RRSP withdrawal limit increased to $60,000.
Deputy Prime Minister and Finance Minister Chrystia Freeland announced a number of housing affordability measures that she said will help buyers get their first homes and help current homeowners afford the homes they have.
One of such measure is that, effective April 16, the amount first-time home buyers can withdraw from their RRSPs to make a down payment on their first home will rise from a maximum of $35,000 to $60,000. This, in addition to the Tax-Free First Home Savings Account, is expected to give younger Canadians more tools to mobilize the down payment towards purchasing their first home
3. Extending RRSP repayment period
Announced alongside the increase in the limit is also the extension that more than doubles the time allowed for Canadians to start repaying their RRSP contributions once they have made a withdrawal to pay for the deposit on a home. First-time home buyers who withdraw money from their RRSPs between Jan. 1, 2022, and Dec. 31, 2025, will now have five years to begin repayments instead of two.
4. Insured mortgage amortization up to 30 years
Beginning Aug. 1, first time home buyers with insured mortgages who purchase a newly built home will get 30 years to pay the mortgage back. This measure ensures that new home buyers can afford to pay their monthly mortgage.
Amidst the changes of moving, try to maintain familiar routines and rituals as much as possible to provide stability and comfort for your children. Set aside time for family activities, bedtime stories, and other familiar rituals to help them feel grounded during the transition.
