by Randall Mang, Real Estate Advisor, Engel and Völkers, Saanich Peninsula Specialist –
Beyond the trees and gardens budding across the Peninsula, the perennial spring real estate market is bursting to life. Among the current market conditions affecting dealmaking, new taxes have popped up that beg attention.
First, the market: Since striking a balanced tone in March, sales have heated up as a growing stream of buyers vye for a limited number of listings. While negotiations are still on the table, for buyers it’s a good time to get serious; for sellers, it’s a chance to fulfil life goals and achieve financial objectives.
Before rushing into a deal, it pays to get answers to finance questions before you start negotiations. This includes understanding how tax implications can affect bottom-line results.
For example, tax expert Grant Kratofil says the new federal anti-flipping tax could affect sellers. Introduced in January 2023, this new tax can mean that a gain is treated as fully taxable business income when a property is held for fewer than 12 months. “There is no principal residence deduction or capital gains treatment,” says Kratofil, a partner at NKPG Professional Services and longtime Peninsula resident. There are limited exceptions, including extenuating life circumstances such as death, sickness and a change in family status.
In some situations, things can get tricky. For example, buyers who purchased a pre-construction condominium when interest rates were low may now be taking possession in today’s higher-interest-rate environment and need to sell quickly. “The anti-flipping tax would apply,” says Kratofil. “The question is whether or not the buyer may qualify for an exemption.”
On another front, even if property owners aren’t considering selling, Kratofil says they should be aware of the new Underused Housing Tax (UHT).
While this tax targets non-Canadian-resident and foreign property owners, certain Canadian property owners – including private companies and trusts (other than estates) –must file a UHT return annually, in order to avoid risk of penalties that can exceed $5,000, says Kratofil.
This includes parents who helped their adult-aged children buy a home, and as a result are on title for financing purposes only, he notes. “To avoid risk of penalty, they should file a UHT return.”
Not all the recent legislative news is gloomy. For example, Kratofil says first-time buyers can now save $40,000 tax-free towards the purchase of a home through the Tax-Free First Home Savings Account. “It works like a hybrid between a Tax-Free Savings Account and an RRSP. Your contributions are tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable,” says Kratofil.
As Kratofil’s advice illustrates, when it comes to real estate, it always pays to think and act strategically before setting wheels in motion.
