Feds target housing market speculators

Tighter mortgage rules, crackdown on capital gains exemption abuse expected to help tame wild real estate market




The federal government will make it tougher for speculators to profit tax-free from Canadian real estate investments, while further tightening mortgage qualification rules to help avoid excessive risk in the housing market.

The changes announced Monday by Finance Minister Bill Morneau are expected to put further downward pressure on hot housing markets such as Vancouver and Toronto.

Homes sold from now on won’t be eligible for the principal residence exemption from capital gains tax  if the seller wasn’t a resident of Canada in the year they bought the property.

Experts say that should bar foreign investors from using the capital gain exemption and also hit some Canadian citizens who have been abusing the exemption to use real estate as a tax-free investment.

The Canada Revenue Agency will now require taxpayers to report the sale of homes for which they are claiming the principal residence exemption.

NDP housing critic David Eby predicted the federal rule change could have more effect even than the B.C. government’s recent imposition of a 15 per cent foreign buyer tax on residential real estate sales in Metro Vancouver.

“I think there’s a great deal of domestic speculation in the housing market that is totally unaddressed by the foreign buyer tax,” Eby said.

“The reason people are putting money into real estate instead of shares of a company is because they can do so capital gains free.”

He suggested that with CRA auditors poised to take a harder look at potentially phony claims of the exemption, more real estate investors may shift to different investments.

Eby has been among the critics who have flagged cases of homemakers and students buying multi-million-dollar Vancouver-area homes with minimal to no declared annual income.

When those individuals sell a million-dollar home and avoid paying tax on a $300,000 capital gain, he suggested, they’ll be prime targets for “lifestyle audits” by the CRA.

The new disclosure requirement should also help the CRA unravel cases where multiple family members – mother, father and kids – are each declaring different principal residences to dodge capital gains despite a rule that a family could only declare one such property exempt.

Ottawa also unveiled a tightening of rules on mortgage insurance eligibility and a revised mortgage rate stress test that will be applied to all insured mortgages.

The revised stress test means more home buyers will have to have sufficient income to meet their mortgage payments not based on the mortgage rate a bank is offering them but based on the Bank of Canada’s posted rate for fixed five-year terms.

“That can be a two per cent difference in what you qualify for,” said UBC associate economics professor Tom Davidoff, who predicted it will make it considerably harder for buyers who are stretching to afford the biggest payment and mortgage they can get.

“I think the lower end of the market is going to feel it the most.”

B.C. Housing Minister Rich Coleman praised the federal measures.

“They are welcome steps that may help provide further fairness and stability in the market for home-buyers,” Coleman said.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A bear similar to this black bear is believed responsible for killing a llama in Saanich on Oct. 19. (Black Press Media file photo)
Saanich residents warned to watch livestock after bear kills llama

Officers with Conservation, Saanich police could not track the bear they feel may not fear humans

A 23-foot sailboat that broke free from its anchor was smashed against Cattle Point during the early October south-easterly storms. (Ron Geezin Photo)
Storm-smashed boat pulled off rocks of Cattle Point in Oak Bay

Sailboat a casualty of last week’s big storms

With local MLA Adam Olsen looking on, BC Greens leader Sonia Furstenau said a Green government would convert BC Ferries into a Crown corporation Wolf Depner/News Staff)
Green leader Sonia Furstenau promises to convert BC Ferries back into Crown corporation

Promise comes Monday afternoon with five days left in campaign

More than 250 riders took part in the fifth annual Tripleshot CrossFondo, which riders across parts of the Saanich Peninsula, including this field near Sluggett Farms. (Wolf Depner/News Staff)
Tripleshot CrossFondo rides across Saanich Peninsula

More than 250 cyclists took part in mystery-course race

City of Victoria crews will soon be gathering up fallen leaves in neighbourhoods and city parks. First up on the pickup list are the James Bay, Fairfield, Rockland, Gonzales and South Jubilee neighbourhoods, starting Oct. 19. (Courtesy City of Victoria)
Victoria city leaf pickup a sure sign of fall

Residential pickup begins Oct. 19, drop-offs can happen anytime at city yard

Advance polls are open from Oct. 15 to 21 with election day on Oct. 24. (Black Press Media file photo)
A passer-by walks past a COVID-19 testing clinic in Montreal, Friday, Oct. 16, 2020. THE CANADIAN PRESS/Ryan Remiorz
Canada ‘yet to see’ deaths due to recent COVID surge as cases hit 200,000

Much of the increase in case numbers can be attributed to Ontario and Quebec

Police confirm human remains were found in a recycling bin in Vancouver on Oct. 18, 2020. (Black Press Media file photo)
Human remains found in recycling bin floating near Vancouver beach

Police asking nearby residents to see if their recycling bin has gone missing

(File photo)
RCMP: Two men face charges in reported Parksville fatal hit-and-run

Investigation into man’s death began in August of 2019

B.C. Liberal leader Andrew Wilkinson visits a North Vancouver daycare to announce his party’s election promises for child care, Oct. 9, 2020. (B.C. Liberal Party video)
B.C. parties pitch costly child care programs in pandemic

B.C. Liberals say they’ll deliver on NDP’s $10-a-day promise for lower-income families

Steven Michael Bacon pleaded not guilty to a charge of first-degree murder of Nanaimo teen Makayla Chang. (Photos submitted)
Accused pleads not guilty in Nanaimo teen’s 2017 murder

Steven Bacon appeared in Nanaimo court Monday via video link from Thunder Bay

Voting station at Tzeachten Hall in the riding of Chilliwack-Kent on the first day of advance voting in the provincial election on Oct. 15, 2020. (Paul Henderson/ Chilliwack Progress)
B.C. VOTES 2020: 380,000 British Columbians head to polls in first 4 days of advance voting

Some of highest voter turnout so far has been seen on Vancouver Island and in Shuswap

Grant and Barbara Howse, in quarantine in Invermere. Mike Turner photo
Denied entry into U.S., Kootenay couple still forced to quarantine for 2 weeks

The rules around crossing the U.S. border led to a bizarre situation for an Invermere couple

Most Read