In the 2022 federal budget, housing affordability was a key focus for the liberals. Now, they are putting their money where their mouth is. The federal government recently highlighted its plans to tackle sky-high housing costs via measures like a crackdown on speculators, a temporary ban on foreign buyers, a new tax-sheltered way for Canadians to save up and buy a home, and a pledge to double the pace of new home construction.
The Tax-Free Home Savings Account
A Tax-Free First Home Savings Account means
that starting next year, Canadians could contribute as much as $8,000 a year to
the accounts to buy a home with that money in a tax-advantageous way.
Right now, Canadians make use of anything
from savings accounts to an RRSP
or TFSA to save for their first home. This is not ideal as they all have certain
tax restrictions.
The new program is tax-free in and tax-free
out. A Canadian can contribute until they reach a maximum lifetime contribution
limit of $40,000. The government estimates the Tax-Free First Home Savings
Account program will cost the federal government approximately $725 million in
tax revenue.
Finance Minister Chrystia Freeland believes
the government sees that as money well spent. She said, "We will make it
easier for our young people to get those first keys of their own," She
described the government's various housing initiatives as "perhaps the
most ambitious plan that Canada has ever had."
The Other Targets
The budget also targets other housing
issues that drive the prices up, like speculators, flippers, foreign buyers,
and blind bidding.
To help fight those issues, the Canadian
government has proposed a two-year ban on residential real estate purchases by
people and companies that aren't citizens or permanent residents. Some
international students, people with work permits, and refugees would be exempt
from the ban. Also, the ban won't include recreational property options like
cabins, cottages, and other vacation homes.
The Prediction
The budget predicted that Canada will need
to build about 3.5 million homes by 2031 to improve affordability. There are plans
to double the annual pace of building in the country over the next decade to
achieve that goal. It is currently 200,000 units per year.
The Right Incentive
A partner for advisory services and a
regional economic and policy leader at KPMG, Mathieu Laberge, believes that the
new savings account offers the right incentive for people to save for a down
payment on a first home. He said, "What first-time homebuyers are struggling
with right now is to accumulate sufficient capital for a down payment, I think
it was developed in a way to maximize incentives for savings in the sense that
it's like an RRSP. The amounts you put into the account are actually tax-free,
and when you withdraw them, unlike an RRSP, you're not taxed on them."
He also stated that some potential
homebuyers might also use the accounts to save for a little longer time than
they otherwise would have. It will allow them to accumulate a little more before
moving on to a home. It might help to ease demand shortly.
Sources:
https://www.cbc.ca/news/business/budget-housing-1.6412384
https://globalnews.ca/news/8743554/canada-budget-2022-housing-affordability-supply-foreign-buyers/
https://www.cp24.com/news/feds-create-new-tax-free-account-for-first-time-homebuyers-1.5853096?cache=yes%3FclipId%3D375756%3FautoPlay%3Dtru%3FclipId%3D1921747