The 2024 Federal Budget is in. While it’s no New York best-seller, there are a few key changes for first-time home buyers and Canadians looking to sell their secondary/vacation homes worth noting.
Let’s talk about these changes and what we think of them.
Change No. 1: First-time homebuyers can take out a 30-year amortization on new builds
This was the first announcement from Deputy Prime Minister and Minister of Finance, Chrystia Freeland. And if you’re thinking, “Just for first-time home buyers?” we’re thinking the same thing.
The logic makes sense. Stretching the loan period lowers the monthly payments. But, it only helps a specific type of home buyer.
First, why ONLY first-time home buyers? Why not ALL home buyers? This hardly addresses the skyrocketing costs and lack of supply to our ongoing housing crisis.
Second, why is it only applied to new builds and not pre-existing homes? The average time it takes to build a new home (single, semi-detached, and row) is just under 12 months. It takes over two years for new apartment builds.
While a first-time buyer could theoretically purchase a new build, it could take a year before they move in. They still need somewhere to live during that time.
New developments are popping up further and further from the heart of downtown, with some areas being a 45-minute drive away, whether you’re in Calgary, Edmonton or Grande Prairie. This ultimately results in higher transportation costs at the same time as they’re struggling to pay new homeowner utility bills, property taxes, and maintenance costs they didn’t have as renters.
Overall, do we see this change making a huge difference? For those specific buyers, sure. It opens another avenue for us to help clients get into a home.
For the overall health of Canadian homeowners? Not really.
This change goes into effect starting August 1, so only time will tell the impact.
Change No. 2: The amount first-time home buyers can withdraw from their RRSPs for a down payment increases from $35,000 to $60,000.
The government loves to change this amount. In 2009, the limit was $25,000. In 2019, they increased it to $35,000. And as of April 16, 2024, it jumped to $60,000.
Again, this is specific to first-time home buyers who can utilize their RRSPs to buy a home. But how many first-time home buyers have $60,000 in RRSPs?
We’re not saying it’s impossible. The average age for a first-time home buyer is between 35-37. If they were fortunate to start working right out of school, for a company that contributed to their RRSPs, there might be enough cash for a down payment.
This is supposed to work with a First Home Savings Account (FHSA), which again, is meant to help first time home buyers save for a down payment.
There are some instances where you can use your RRSP even if you aren’t a first-time buyer. If you have questions about this, we can help.
Change No. 3: An increase in capital gains tax for Canadians looking to sell their second homes, vacation homes, or tax investments
For all you non-first-time home buyers, there’s a change for you, but it’s not the good kind. Starting June 25, the capital gains tax inclusion rate increases from 50% to 67%.
This new rate only applies to capital gains above $250,000 PER OWNER on title. Any gains below that threshold are treated as before at 50% taxable.
What does that look like? Say you purchased your vacation home for $300,000 and sold it for $600,000. Your capital gain of $300,000 used to be taxed on $150,000 (50%).
However, at a 67% capital gains tax, that same vacation home jumps in taxable income from $150,000 to $201,000. How much tax you actually pay on these gains depends on your marginal tax rate and if there are multiple owners on title (like your spouse). It's best to talk to your accountant on how this will work for you.
This increase is supposed to finance new spending on housing while bringing tax fairness between middle-class and wealthy Canadians.
What this really spells is more government spending (at your expense) and less incentive to sell your secondary/vacation homes after June 25.
These Changes Help a Select Few
Here’s the deal. These policies benefit first-time home buyers, but they don’t affect the majority of Canadians. If you’ve already purchased your primary home, these changes don’t matter. A bigger concern is the 74% of Canadians renewing their residential mortgage in the next 18 months.
We’re facing a stressful concoction of high interest rates, higher costs of living, low inventory, higher migration (meaning more people needing housing) and financial strain that’s difficult for Canadians to swallow.
And if you’re affected by the increase in capital gains tax, you are either shifting towards a long-term investing mindset or coming to terms with your (involuntary) support of wealth redistribution and tax fairness and equity.
On the bright side, the value of homes has increased across the board. This can allow you to use your home equity to get some breathing room to pay off debts or refinance to cut down your payment.
Always remember: You have options
It sounds a little doom and gloom, but we don’t want to leave you in despair.
If there’s one thing we’ve learned over decades in this industry, it is that there are always options for you. And the best way to learn about these options is to be proactive.
Need help negotiating with your lender? We got you covered. Want to look at debt consolidation? Yes, let’s. We’re here to help you in any way we can.
Whatever the case, you don’t know what options you have until you ask. Be proactive and connect with one of our awesome team members to figure out your next move.
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