2023 Federal Budget: What it means for your mortgage
The government unveiled their 2023 Federal Budget yesterday, a $497-billion plan that focuses heavily on healthcare and green technology incentives, while touting relief for Canadian households who’ve been hammered by rapidly rising inflation.
Tabled by Deputy Prime Minister and Finance Minister Chrystia Freeland, highlights from the federal Liberals include a $22.2-billion infusion for higher healthcare transfer payments to the provinces, as well as $7.3 billion over five years for a new dental care plan for uninsured Canadians. A $2.5-billion GST credit – packaged as a “grocery rebate” -- that will offer a one-time payment to lower income Canadians (averaged at a maximum of $153 per adult), as well as an increase to the RESP withdrawal limit to $8,000 from $5,000 are also grabbing day-after headlines.
The feds have maintained this budget, while introducing a projected $43 billion of new deficit spending, has been allocated in a way to avoid throwing more fuel on Canada’s inflation fire. However, it has re-introduced the expectation of a $14-billion deficit over five years, worse than what was projected last fall, and up from the $36.4 billion expected for this fiscal year. Overall, the ratio of federal debt as a proportion of GDP will increase to 43.5% from 42.5%. That’s certainly not going to ease the task facing our central bank, which has struggled to bring inflation back to its 2% target, writes BMO Senior Economist Robert Kavcic.
“While inflation has shown signs of cooling, the Bank of Canada remains in a dog fight with price and wage pressures, rendering stimulative measures counterproductive (like direct support payments), although Ottawa just couldn’t fully resist on that front,” he states in an analysis note. “Oft-rumoured and more contentious policy measures (e.g., broad capital gains inclusion rate, top income tax rate and principal residence exemption) are again unchanged in this budget. All told, this budget continues to push fiscal priorities against a weaker and riskier economic backdrop, leaving behind a deeper deficit path.”
While this budget was comparably light on housing items compared to last April’s, there are a few small tidbits that mortgage borrowers and homebuyers will want to take note of.
The launch of the Tax-Free First Home Savings Account
Initially announced in last spring’s budget, the new First Home Savings Account is officially coming into effect, available at financial institutions as of April 1. This registered plan allows those putting money aside for a home purchase to save up to $40,000 within the account on a tax-free basis. Similarly to an RRSP, the contributions are tax-deductible, and withdrawals that are used to purchase a first home – including any investment income earned – are non-taxable.
A new Code of Conduct to protect mortgage holders
Following a historic eight interest rate hikes from the Bank of Canada over the past 12 months, interest rates have soared for variable-rate mortgage and line of credit products. That’s created financial hardship for many existing variable borrowers who have seen either their monthly payments increase, or less of their payment going toward their mortgage principal.
Rate hikes have also caused many variable-rate borrowers on a fixed payment schedule to hit their “trigger rate” – the point at which their payment fails to contribute to their principal balance at all, requiring them to either increase the size of their payments, or take another tactic, such as extending their mortgage’s amortization.
While Canada’s mortgage lenders have already been instrumental in working with borrowers to explore their options in these situations, it would appear the federal government is looking to establish an official guideline that would “protect Canadians with mortgages who are facing exceptional circumstances,” including the ability to extend amortizations, adjust payment schedules, allow for lump-sum payments, or extend amortizations past 25 years.
“Specifically, the government is taking steps to protect Canadians and ensure that federally regulated financial institutions provide Canadians with fair and equitable access to relief measures that are appropriate for the circumstances they are facing... This guideline will ensure that Canadians are treated fairly and have equitable access to relief, without facing unnecessary penalties, internal bank fees, or interest charges, which will help more Canadians afford the impact of elevated interest rates,” states the Budget document.
Changes to the Real Estate Foreign Buying Ban
Announced a day prior to the official budget, the government is also walking back portions of the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which came into effect on January 1, 2023. Introduced in the 2022 budget as part of the feds’ strategy to improve housing affordability in Canada, the Act banned non-Canadians from purchasing residential property for a total of two years, with the exception of certain circumstances.
To “enhance the flexibility of newcomers and businesses looking to add to Canada’s housing supply”, new amendments have come into effect immediately:
- Those who are authorized to work in Canada and who have 183 or more days of validity on their work permit can now purchase a home (limited to one residential property).
- The prohibition no longer applies to vacant land, including those zoned for residential and mixed-use; they can now be purchased for any purpose, including residential development.
- Residential properties can now be purchased by non-Canadians for the purpose of development. The amendments also extend the exception currently applicable to publicly traded corporations under the Act, to publicly traded entities formed under the laws of Canada or a province and controlled by a non-Canadian.
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Increasing the corporation foreign control threshold from 3% to 10%: For the purposes of the prohibition, with regards to privately held corporations or privately held entities formed under the laws of Canada or a province and controlled by a non-Canadian, the control threshold has increased from 3% to 10%. This aligns with the definition of ‘specified Canadian Corporation’ in the Underused Housing Tax Act.
Updates to Canada’s National Housing Strategy
Rising interest rates aren’t just squeezing Canadian consumers; they’ve made it prohibitively more expensive to get new housing built, particularly at the purpose-built rental and deeply affordable market levels. Under this year’s budget, the government is reallocating funds from the National Housing Co-Investment fund for the purpose of new construction, with a focus on affordable housing. They’ll also commit an additional $4 billion over seven years to a co-developed Urban, Rural, and Northern Indigenous Housing Strategy.
Continued work on the Home Buyer’s Bill of Rights
Initially announced last year, the feds offered a status update on the creation of this Bill, saying they’re working with the provinces and territories to develop it, with the intent of making the homebuying process “more open, transparent, and fair.” This could include the legal right to a home inspection, requiring that real estate agents disclose whether they are representing both sides of a potential sale, and ensuring transparency on the history of sale prices.
As well, “to ensure the dream of home ownership is a possibility for all Canadians”, Budget 2023 announces that the government will consult on changes required to remove regulatory barriers for homebuyers from diverse communities seeking access to alternative financing products.
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