Budget 2019 and the Real Estate and Construction Sectors

BUILDING SOMETHING BETTER

On March 19, 2019, Bill Morneau, the Minister of Finance, introduced Canada’s 2019 federal budget. Budget 2019 continued its support of the National Housing Strategy, originally introduced in 2017, with the emphasis on housing affordability and proposed several measures intended to:

•  Make housing more affordable for first-time homebuyers
•  Increase supply in Canada’s housing and rental markets
•  Increase fairness in the real estate sector

FIRST-TIME HOME BUYERS

To help make homeownership more affordable for first-time homebuyers, Budget 2019 proposed introducing the First-Time Home Buyer Incentive, where Canada Mortgage and Housing Corporation (CMHC) would provide up to $1.25 billion over 3 years to eligible home buyers, beginning in 2019.

The First-Time Home Buyer Incentive is described as a “shared equity mortgage” where CMHC would contribute 5 percent or 10 percent of the home purchase price (ie. 5 percent for an existing home and 10 percent for a newly constructed home) which would reduce the amount of the home buyer’s down payment and required mortgage and then consequently, reduce the related monthly mortgage payments. No monthly or other periodic payments are required in respect of the CMHC contribution and the home buyer would not be required to repay the CMHC contribution until the time the home is sold.

Functionally, the incentive appears to operate like an interest-free loan, but Budget 2019 contained few details, noting details would be released later this year. The government estimates the First-Time Home Buyer Incentive plan could create up to 100,000 new first-time homebuyers over the next 3 years, which, combined with the 10 percent incentive for a newly constructed home, is intended to help encourage home construction.

Another first-time home buyer measure included in Budget 2019 is a proposal to increase the RRSP Homebuyer’s Plan withdrawal limit by $10,000, to $35,000 from $25,000.

INCREASING HOUSING SUPPLY

In 2017, the federal government introduced the Rental Construction Financing Initiative which provided low-cost financing rates and terms to developers for construction of new rental housing units. Budget 2019 proposed providing an additional $10 billion in financing under this initiative over 9 years.

This new funding is expected to support construction of 42,500 new rental housing units across Canada. Budget 2019 also proposed providing $300 million to launch the Housing Supply Challenge. This program invites municipalities and other stakeholders to propose new ways to overcome barriers limiting the creation of new housing. The challenge will provide resources to find new ways to enhance housing supply and provide a platform to share these models with communities across Canada.

INCREASED REAL ESTATE AUDITS BY CANADA REVENUE AGENCY (CRA)

Budget 2019 proposes to provide CRA with $50 million over 5 years to create 4 new dedicated residential and commercial real estate audit teams. The teams will focus on B.C. and Ontario to ensure, among other things, the following:

•  Taxpayers report all sales of their principal residence on their personal tax return;
•  Money made on real estate sales is reported as income; and
•  For purposes of Goods and Services Tax / Harmonized Sales Tax, builders of new residential properties remit the appropriate amount tax to the CRA.

This is a continuation of CRA’s efforts to ensure compliance in the real estate sector since 2015. The federal agency will continue working closely with provincial governments to monitor changes in ownership of real estate. For example, in B.C., the provincial government recently introduced various declaration and disclosure requirements around real estate ownership where the data collected will be shared with the CRA.

With the creation of dedicated CRA real estate audit teams and collaborative information sharing efforts with provinces such as B.C., parties involved in real estate through the supply chain can expect continued CRA audit and enquiry activity, notably in B.C. and Ontario.

For more information, contact Ryan Hoag, CPA, CGA, Regional Tax Leader, at 604.536.7614 or [email protected]