Earlier this month CTV News published an article outlining the details of the Federal Government’s announcement on new measures designed to help stabilize the real estate market and close real estate tax loopholes for foreign buyers.
Here is a look at how these loopholes were being used and how recent changes are designed to close the
Real estate loopholes once used by foreign buyers to avoid capital gains tax are being closed by governments federally and provincially after The Globe and Mail published a story of a luxury home builder in Vancouver who approached both the police and the Canada Revenue Agency (CRA) about a local speculator whom he felt was dodging taxes and misleading lenders.
In part as a result of the ensuing Globe and Mail story, British Columbia introduced a 15% foreign buyers tax in early October 2016. The federal government also developed new Canadian mortgage laws to increase the stress test requirements for mortgage applicants Canada-wide that took effect October 17, 2016.
How Were Real Estate Loopholes in British Columbia Being Used?
Homeowners, under Canadian tax law, are not required to report the sale of their principal residence. Properties designated as principal residences are not subject to taxes on increased value or capital gains. To be designated as a principal residence, homeowners have to live in the house sometime during the year the designation was claimed.
In another article by The Globe and Mail titled Trudeau government to close foreign-buyers loophole, expert sources explain two ways foreign investors were exploiting the system:
- “The breadwinner claims to be a non-resident of Canada and pays no taxes here, while their spouse and children buy and sell homes registered in their names. The homes are purchased with money received as a ‘gift’ from the breadwinner. The homes can then be sold tax-free, because the family members claim to be residents of Canada, classify the properties as their principal residences, and therefore pay no tax when they sell.”
- “The breadwinner claims to be a resident of Canada but then doesn’t report their worldwide income to the Canada Revenue Agency as required by law. Because they claim to be residents, they can sell Canadian properties in their name, tax-free, even if they spend little or no time in Canada.”
Lawyers and tax accountants told The Globe and Mail that these types of sales could be done with more than one property because the Canadian Revenue Agency does not require a resident to report the sale of a principle residence.
What Does This Mean Long-Term for the Real Estate Market?
Whether or not British Columbia’s 15% foreign real estate buyers tax will make a significant improvement in the long-term availability of homes for sale in the Fraser Valley remains to be seen. The increased federal stress test requirements for homebuyers will also have to play out more extensively before there are any indications that the housing market might be affected one way or the other.
If you have questions about Fraser Valley real estate in lieu of the Provincial or Federal changes, give Natasha Taylor a call. She would be pleased to discuss specific details with you and help you understand what the current status of the BC housing market might mean for you as a homeowner or potential home buyer.
You can reach Natasha by Phone at 778-316-4290. She can also be reached by email at email@example.com.