New Year, New Rules
New Year, New Rules
As you’ve probably already heard, the new Home Buyer Rescission Period (HBRP) came into effect on Tuesday, Jan 3rd, 2023. The HBRP gives buyers the right to rescind their offer up to three business days after the offer is accepted. If a buyer can’t secure financing, sees some red flags in their home inspection report or simply changes their mind, they can back out of their offer but must pay a 0.25% rescission fee to the seller. This rescission fee is put into place to protect the seller from anyone who would misuse the HBRP and hopefully recoup any losses the seller may incur from any lost potential offers. The government says the cooling off period will give buyers some protection in the face of rising interest rates and will apply to detached houses, townhomes and condos but does not apply when a home is auctioned or when the home is on leased land (leasehold properties).
As with the HBRP, the Foreign Buyer Ban also took effect at the beginning of 2023, barring commercial enterprises and individuals outside of Canada from buying any residential real estate in the country. During the covid pandemic, we saw the demand for housing grow and, as a result of that demand, home prices increased substantially. Although prices in Canada have since dropped, affordability still remains a concern for many Canadians in addition to the increase of interest rates. This new ban applies to any residential home (detached, semi-detached and attached) within a census metropolitan area or a census agglomeration. A census metropolitan area has a total population of at least 100,000 people, with at least 50,000 living in its core, while a census agglomeration has a core population of at least 10,000 people. The regulations also apply to vacant land that does not have any livable dwellings but is zoned for residential or mixed use. Homes in municipalities with a core population of less than 10,000 are not subject to the ban, nor are recreational properties such as cottages and lake houses. Additionally, the law does not explicitly ban the purchase of larger buildings with multiple units.
Although the legislation targets non-Canadians, there are some exceptions. Those in Canada with temporary work permits are still allowed to buy residential properties, as are refugee claimants and international students who meet certain criteria. The ban does not apply to those who are Canadian citizens or permanent residents, nor does it apply to non-Canadians who are looking to rent a residential property in Canada. Non-Canadians with a spouse or common-law partner who is a Canadian citizen, permanent resident, person registered under the Indian Act or refugee are also exempt from the ban. For any non-Canadians who violate this ban, they could be sued up to $10,000 and be forced to sell the property they purchased.
Lastly, a new “Anti-Flipping” tax has also been introduced this year. Under this new rule, any gain on flipping a property will be considered a business income and will be fully taxable for properties owned within Canada for less than a 12 month period. There are some exceptions to this rule. Any life event including relocation for a job or involuntary termination from a job, breakdown of a marriage or common-law partnership or even a death in the household/family. Where the residential property flipping rule doesn’t apply to the disposition of a residential property, case law and the relevant facts would still need to be considered to determine the tax treatment. The new rule can be quite complex but we can help determine whether it affects you.