Here’s all The Tax Talk: First Home Buyers Take The Win, Foreign Buyers Banned

The 2022 federal budget was unveiled in Ottawa a few days ago, with the Liberals focusing on putting billions of dollars towards housing, national defence, climate change, and dental care, as well as reconciliation with Indigenous communities.

There is no mention of any large-scale tax changes in this budget, and notably, there has been no mention of capital gains inclusion rates. However, there is a lot of talk about taxes when it comes to buying property, employment and small businesses.

Budget 2022 proposes:

  • A Tax-Free First Home Savings Account, which would allow prospective first-time homebuyers to save up to $40, 000. Contributions would be tax-deductible, and withdrawals to purchase a first home would be non-taxable. In 2023, the government intends to work with financial institutions to ensure that a TaxFree First Home Savings Account can be opened. Approximately $725 million in support would be provided by the Tax-Free First Home Savings Account over a five-year period.
  • Doubling the First-Time Home Buyers’ Tax Credit amount to $10,000, which would provide up to $1,500 in direct support to home buyers. However, this measure would only apply to homes bought on or after January 1st, 2022.
  • Banning foreign investment in Canadian housing. That means that foreign people, as in people who are not citizens or permanent residents of Canada, won’t be able to buy property for at least two years.
  • Property Flipping To Come With A Cost – this is another way of Canada’s effort to save the housing market. Property flipping means selling a property you have held for less than a year. According to the new plan, anyone who does that will be subject to full taxation on their profits.
  • Taxing all assignment sales of newly constructed or substantially renovated residential properties fo GST/HST purposes. Effective May 7, 2022.
  • Tax reduction for small businesses growing in Canada: phase out access to small business tax rates more gradually, with access to be fully phased out at $50 million, rather than $15 million.
  • Employee ownership trusts: Employee ownership trusts are designed to encourage employees to become the owners of their companies, decreasing the amount of privately-owned companies.
  • To close the double-deduction loophole by amending the Income Tax Axt to deny a taxpayer the deduction of dividends received when such transactions have taken place.
  • Increasing the maximum amount of forgivable Canada Student Loans for doctors and nurses in rural and remote communities, by 50 percent. Up to $30,000 in loan forgiveness for nurses, and up to double the amount for doctors.
  • Dental Care for Canadians covered by Health Canada. By 2025, this will be fully implemented for all children under the age of 12, seniors, and persons living with a disability. It will start with under-12-year-olds in 2022, then expand to those under 18 years old and persons living with a disability in 2023. This will be restricted to families with less than $90,000 annually.
  • Asking Financial Institutions to Help pay for the recovery – by imposing a temporary Canada Recovery Dividend of 15% on taxable income above a billion dollars for the 2021 tax year. It also proposes to raise the corporate income tax by 1.5% on the taxable income of banking and life insurance groups.
  • Preventing Using Foreign Corporations to Avoid Tax – investment income earned and distributed by private corporations is prone to the same taxation as investment income earned and distributed by CCPCs. That means this bill could apply to those who have moved their corporation into a foreign country to pay lower taxes by using foreign shell companies or by moving to an offshore corporation.
  • Boosting Charity – a new disbursement quota rates for charities. For investments above a million dollars, the quota will be from 3.5 to 5 percent.
  • Minimum Tax For High Earners – the budget proposes the next steps towards the government’s examination of a new minimum tax regimen which should go towards ensuring that all wealthier Canadians pay their fair share of tax.
  • Correcting Anti-Avoidance Tax Rules that should ensure the correct amount of tax is paid when an interest coupon stripping arrangement is used since they exploit the differences between international tax treaties and allow some to pay less in taxes.
  • International Tax Reform – the government is ready to introduce legislation for a digital services tax to ensure that all corporations, including those in the digital sector, pay their fair share of tax on the revenue they earn in Canada.
  • Cryptocurrencies in Canada – the government is addressing the digitalization of financial assets while announcing the launching of a financial sector legislative review that will focus on cryptocurrencies and stablecoins.
  • Strengthening GAAR (general anti-avoidance rule) – by mending the income tax to provide that the GAAR will apply to transactions affecting tax attributes that have not yet been used to reduce the taxes.
  • Bill C-208 Follow-up – setting up a consultation process to hear stakeholder views on how to continue to facilitate genuine intergenerational business transfers while protecting the integrity of tax systems.
  • Discontinuing flow-through shares for oil, gas, and coal activities
    Switching to zero-emission vehicles – widening the range of eligible vehicles for purchase incentives.
  • Construction tradespeople and apprentices who temporarily relocate for work will be able to deduct up to $4000 per year for reasonable lodging expenses.
  • Blind Bidding: A Home Buyers’ Bill of Rights and a national plan to end blind bidding will be developed and implemented over the next year by the Minister of Housing and Diversity and Inclusion. Besides ensuring a legal right to a home inspection, a Home Buyers Bill of Rights could also ensure transparency on the history of price changes on title searches.
  • Housing Accelerator Fund: The Budget proposes to provide $4 billion to the Canada Mortgage and Housing Corporation to launch a new Housing Accelerator Fund. The fund will be dedicated to assisting municipalities in building 100,000 new units over the next five years.

Also, according to the federal budget, people wanting to renovate their homes and add accommodation for a senior person can also get a tax credit. It will be called Multigenerational Home Renovation Tax Credit, and it would provide up to $7500 in support for the construction of a suite for a senior or an adult with a disability. This will allow families to claim up to $50 000 if the expenses are eligible, starting in 2023.

As for other types of renovations, you can get up to $10 000 of a tax credit on eligible home renovation expenses through the non-refundable HATC.

First Time Home Buyer Incentive

In order to help more people buy their first home, the federal government introduced the First-Time Home Buyer Incentive, which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government. The government extended the incentive to March 31, 2025. Canada is also researching an option that would let you rent until you own. To help develop that plan, Canada is providing $200 million under the existing Affordable Housing Innovation Fund.

If you need help buying your first home, give us a call.