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The back alley behind real estate. Enjoy tips, tricks, and insights into buying, selling, and investing in real estate in Toronto.

The Government Announced What !?!

In this week’s market update, we are looking at Canada’s new housing plan and last month's inflation numbers.

Canada’s New Housing Plan - Capital Gains Tax

The Government announced its Federal Budget, and housing was a key priority. This was unsurprising, as the Government and Housing Minister have been hinting at policy changes for several weeks. One of the most significant changes which admittedly caught us off guard was the increase in the Capital Gains inclusion rate.

So what is the inclusion rate, and how does the change affect homeowners? Let’s start with what capital gains are. Capital gain is the difference between an asset's cost and its total sale price. An asset could be a cottage, an investment property, a stock or a mutual fund. Some situations don't trigger a taxable capital gain, like if you sell your primary residence. However, when selling an investment or secondary property, any profit or appreciation is taxable. At the current inclusion rate, only 50% of the capital gains would be added to your personal income. The new policy increases the inclusion rate from 50% to 66.7% for properties sold on or after June 25, 2024. For individuals, this applies to annual gains above $250,000 and to all gains for corporations and trusts. The new policy change does not impact primary residences.

According to federal government data, 28.5 million Canadians are not expected to have any capital gains income at all, and three million are expected to earn capital gains below the $250,000 annual threshold. The data also indicates that only 0.13 percent of Canadians—people with an average income of about $1.4 million a year—are expected to pay more in personal income tax on their capital gains due to the change.

RRSP Contributions raised to $60K for first-time home buyers

The Federal government also announced the expansion of the withdrawal limit for the RRSP Home Buyers’ Plan to $60,000 from $35,000. This will go into effect on April 16, 2024. This is the second time the withdrawal limit has been increased since it was introduced in 1992; it was last updated from a limit of $25,000 in 2019.

The new measure will also extend the time home buyers have before they need to start making repayment instalments to five years from the current two for those who make HBP withdrawals between January 1, 2022, and December 31, 2025.

Canadian Inflation - Heading in the Wrong Direction

Canada just lost some progress in the war against inflation. Statistics Canada released the Consumer Price Index (CPI), showing a mild acceleration in inflation in March. While minor, the move was broad-based, primarily driven by energy and shelter costs.

Headline CPI saw annual growth accelerate to 2.9% in March, an increase of 0.1 points from the previous month. Energy prices were a major contributor to rising inflation, gasoline in particular. Gas prices rose a whopping 4.9% in March alone, which are now 4.5% higher than last year. Shelter, the most significant major CPI component, is stable but still higher than normal. Annual growth was reported at 6.5% in March, the same level reported a month before. Breaking that down, annual growth for mortgage interest (+25.4%) pulled back, while rents (+8.5%) accelerated slightly. Home building costs were down and still negative (-1.0%); however, they are up slightly from the month before.   

Stay tuned for more information in next week’s market update.