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This Month’s Edition
January, 2023
Happy New Year!
2022 was certainly a tumultuous year for real estate in Canada, and I know there are a lot of folks who are happy to see it gone.
But here we are, and the New Year is upon us! What should we expect going forward?
The final stats for 2022 won’t be released for a few days yet, but I did some checking on December sales numbers, and they continue to be pretty grim. For example:
Square One Condo sales:
2021 – 80
2022 – 30
Downtown Toronto Condos (C01 area):
2021 – 326
2022 – 129
Single Family Detached Homes Oakville:
2021 – 77
2022 – 51
Single Family Detached Homes Mississauga:
2021 – 150
2022 – 74
Single Family Detached Homes Brampton:
2021 – 316
2022 – 129
It looks like single family detached home sales fared a bit better than condos – they are down by about 50% year-over-year, while condo sales dropped by nearly two thirds. Remember, though, that December 2021 was a very hot time for real estate.
Nevertheless, there’s been a huge pivot in the market. All this because of the seven interest rate increases we experienced during the past year. Incidentally, the next meeting of the Bank of Canada is on Jan 25, and there is still a chance of an additional increase on that day. Insiders are saying perhaps a quarter of a point.
There are also three new laws coming into effect in 2023 that will have an effect on real estate:
1.) Canada’s new anti-flipping rules for residential real estate
Effective Jan. 1, 2023
You can no longer claim the principal residence exemption (PRE) to avoid the capital gain realized on the sale of your home if you’ve owned it for less than 12 months.
If you sell your property less than 365 days after taking ownership, the profit you make will be 100% taxable as Business Income.
There are allowances for certain exceptions such as death, disability, separation and work relocation.
Flipping has been defined in government documents as “purchasing real estate with the intention of reselling the property in a short period of time to realize a profit.”
To avoid being taxed you must meet certain requirements, such as actually owning the home (i.e. not an assignment), and living in it for at least part of the year (you or your spouse, common-law partner, or child).
Capital Gains Vs. Business Income on the sale of a property.
If property was purchased for the purposes of flipping, assignment, or buying to build and sell, the profits on the sale of the property will be taxed as Business Income.
If purchased to generate rental income, profits on the sale would be taxed as Capital Gains.
Capital Gains = 50% taxable
Business Income = 100% taxable
Generally, if you are selling a rental property or a second property that you own (NOT your principal residence), you will pay a capital gains tax – so only 50% of the profit you made is taxable.
With this new law, if you are flipping a fixer-upper that you renovated, or selling an assignment from a builder, you will pay tax on 100% of the profit you made.
2.) Two-Year Ban on Foreign Buying of Residential Real Estate
Effective January 1, 2023
“Non-Canadians” are prohibited from purchasing residential real estate in Canada for a period of 2 years
This new ban prohibits direct and indirect purchases of residential real estate by anyone deemed to be “Non-Canadian” which includes:
Foreign Individuals who are not Canadian citizens
Foreign individuals who are not permanent residents of Canada
Foreign corporations
Corporations that are not incorporated in Canada
Corporations controlled by foreign corporations or individuals who are not Canadian citizens or permanent residents of Canada.
There are some exemptions:
Refugees
Foreigners who have a Canadian spouse or common-law partner can purchase jointly with them, as long as their spouse or common-law partner is eligible to purchase residential property in Canada
Certain temporary residents in Canada such as:
Students
Foreign Workers
There are some transitional exemptions:
Agreements of Purchase and Sale that were entered into or assumed by a Non-Canadian prior to January 1, 2023 are ok.
3.) Vacant Home Tax in the City of Toronto
New By-Law 97-2022 – Every homeowner in the City of Toronto has to make a Declaration with regards to their property status
Deadline is February 2, 2023.
City of Toronto may impose a fine of $250 for Declarations made past the due date.
If you fail to make a Declaration, your property will be deemed as vacant and you will be charged a Vacant Home Tax.
Amount of tax = 1% of the Current Value Assessment of your home, each year.
Options for Declaration:
Occupied as principal residence of the homeowner
Occupied as principal residence of a permitted occupant
Occupied as a tenanted property
Vacant with an eligible exemption
Vacant or deemed/determined vacant
Exemptions:
Death of a registered owner
Under repair or renovations
Principal resident is in care
Transfer of legal ownership
Occupancy for full-time employment
Court order
If you’ve made it this far, that’s a lot to digest! These three new laws will have a definite effect on the market. Please remember, if you are affected by any of these tax changes, you must consult with your tax lawyer or accountant. As a realtor, I provide these updates for informational purposes only. I am not qualified to provide specific tax planning advice.
As 2023 unfolds, we will continue to keep you up-to-date on all matters pertaining to real estate in the GTA. The market will stabilize at some point this year, probably once people feel that interest rates are no longer going to rise. Once it does, you will see sales and prices pop.
Wishing you all the very best, and a very Happy New Year!
Randy
Plans to Make before Closing Day
When you sell your property and buy your next dream home, closing day can come faster than you might imagine. Before you know it, it’s just weeks away! So it’s important to make the proper plans to ensure everything goes smoothly.
Here are the most common plans you’ll need to make:
- Contact the post office to get your mail forwarded. No matter how thorough you are in updating your address with companies you deal with regularly, you’re bound to miss a few. Using the mail forwarding service will ensure you get that mail.
- Double-check that your home insurance will be transferred on closing day, so your new home is covered from day one. Also, don’t forget to update vehicle and personal insurance (medical, life, etc.)
- Make arrangements with utility companies – phone, electricity, heating, etc. – as soon as possible. Remember, you might be closing some accounts and opening new ones. That can take time.
- If you are upgrading your internet at the new home, a visit from a technician might be required. Make that appointment now.
There may be more arrangements to make before closing day. Create a checklist to make getting it all done easier and less stressful!
Should You Buy a Home that Needs Work?
Imagine you find a home on the market that checks all the boxes. There’s only one issue. It needs work. Perhaps the paint has faded, or the kitchen is old, or there are repairs needed.
Should you make an offer on that home? That depends on many factors, of course.
The first thing you should consider is whether or not the home is otherwise ideal. If it has everything you want — location, size, style, number of bedrooms, etc. — then you may only be a few improvements away from a real gem.
You should also consider how much those improvements are likely to cost. Cosmetic projects — such as painting, replacing light fixtures, etc. — tend to be more affordable. In many cases, those projects are also DIY-friendly. However, major improvements, such as upgrading the kitchen with new countertops, sink, and cabinetry, can be expensive.
Fortunately, homes that need work don’t show as well as pristine listings. So, the cost of doing the improvements you need might be offset by getting the home at a lower price.
The bottom line is, buying a home that needs work is definitely worth considering.
Data Collection & Privacy Protection
Warnings about online security breaches leading to identity theft are often based on worst-case scenarios of scams or viruses, but it’s important to be aware that commonplace online activity can also contribute to the erosion of privacy.
Most people’s social media conversations, browser histories and search-engine activities are constantly contributing to virtual profiles that identify them as prime recipients of automated communications, usually in the form of targeted advertising and news feeds.
For example, if you show particular interest in specific subjects, products or services, you are certain to be exposed to more of the same, curated through an algorithmic analysis of your usage. Fortunately, you can defend against being a target of constant “click-bait” by deleting your internet history on a frequent basis. You can also regularly remove or block website “cookies” that your computer automatically collects and saves to create shortcuts for faster connections when you revisit sites. These “cookies” also collect data about you that is used by online advertisers and curators of content. Furthermore, you can download an advertising blocker that interrupts ads targeted at you.
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