Our Federal government cancelled the budget last year. 

We incurred just under $354.2 billions of deficit.  This means that, between the tax revenue that they received vs. the spending that they had incurred, they over-spent by $354.2 billions.

Their forecast for upcoming year will be similar.  Spend, spend, spend. 

There’re very few measures imposed in 2021 that would help increasing tax revenue and here’re the highlights specifically for real estate investors & real estate professionals. 

  1. No increase to capital gain inclusion rate … yet

There were headlines and rumours that the government might increase the capital gain inclusion rate.  

Currently capital gain inclusion rate is 50%.  This means that if you buy a house, rent it out for a number of years, sell it for $200K more.  Only 50% of the $200K profit you make is taxable. 

Only $100K is taxable. 

Many newspaper headlines have speculated that the government would increase that inclusion rate to 75% or higher.  A few clients even reached out to me to ask if they should sell their properties before the Federal announcements. 

Thank goodness that it didn’t happen.  Phew…

  1. No primary residence tax … yet

Another speculation I heard was that they would impose a capital gain tax on your primary residence. 

Assuming you own your own home and you always live there and you comply with all the primary residence exemption criteria – when you sell your home for $200K more, you don’t pay any tax on $200K. 

Rumor before the Federal Budget that the government might impose a tax on sale of your primary home just so that they can find ways to reduce their budget.

Thankfully, this also did NOT happen.  

  1. $40K Interest-free home renovation loan is available

Home renovation loan, administered by Canada Mortgage and Housing Corporation (CMHC) of up to $40K is available to homeowners and landlords who complete deep home retrofits identified through an authorized EnerGuide energy assessment.  

Program will be available by summer 2021.  

Example of expenses that can qualify for this loan:

  • Replacing oil furnaces or low-efficiency systems with a high efficiency furnace, air source heat pump, or geothermal heat pump
  • Better wall or basement insulation and/or wall or roof panels
  • Installing a high-efficiency water heater or on-site renewable energy like solar panels
  • Replacing drafty windows and doors

If you are in the market to do legal secondary suites conversion, great news for you!  Chances are, you will be eligible for this interest-free loan from CMHC. 

  1. Expanded eligibility for HST New Housing Rebate 

When you purchase a brand new property, the government offers a GST/HST housing rebate so you don’t have to pay full HST.

To qualify for the HST New Housing Rebate, the homeowners must use the place as their primary residence. 

Under existing rules, if two unrelated individuals are buying the property together, both individuals must satisfy this criteria to qualify for the HST rebate.  Or otherwise, no new housing rebate is available. 

In this budget, the government proposes to make this rebate available as long as one of the owners is using it as primary residence.  

  1. Used zero-emission vehicles will qualify for bigger write-offs

Remember how buying a Tesla may allow you to save over $20K of taxes? 

Under the existing rules, to qualify for the enhanced vehicle deduction, a taxpayer must purchase a brand new vehicle.  

The budget is proposing to allow used vehicles to qualify for the bigger write off. 

  1. Luxury tax on luxury items

If you are one of those people who’re considering buying a Tesla after finding out about the extra tax incentive available, you’re not alone.  

Tesla and all luxury cars, boats and aircrafts will be more expensive starting January 1, 2022.

The government is planning to charge a luxury tax 

Amount of tax being charged is the lesser of 1) 10% of the full value of the vehicle or the aircraft, or 2) 20% of the value above $100K.

GST/HST will apply to this tax as well.  Tax on tax.  Yikes. ☹ 

What’re the lessons here?  

It sure feels like that the government is focusing primarily on rebuilding the economy by spending more. 

The only way to spend more is by printing more money. 

Printing more money means that the dollar that we earn today is not going to worth nearly as much as tomorrow.  Look at the price of lumber, cost of food, and our grocery bills. 

To protect our money, it’s always nice to “save them” in the form of hard assets.  😊 

Congratulations to those who hedge their assets in the real estate market. 

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

1 reply
  1. Meaghan
    Meaghan says:

    Always love reading your blogs, have learnt so much throughout the years. Great insight into the budget from a real estate investor’s perspective.

    Do you feel that its a matter of time before :
    1) capital gains rate change?,
    2) some level of tax on principal residents?

    Reply

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