What is the impact of the new mortgage rules?

September monthly numbers are out.  Sales are second only to September 1992 while residential months of inventory and inventory as a whole are both at record lows.   More on this later in the week but there wasn’t anything groundbreaking here we weren’t already expecting.   The only strange thing is that the VREB headline reads “Victoria Housing Market Chills Out For Fall” which is an odd way to describe a market so strongly tilted towards sellers.

More importantly, as predicted the feds have issued more regulatory changes to try and halt the runaway markets.   Coming as they do on top of the provincial changes, these regulations are all piling on without any waiting period to gauge the effect of the first.  While probably positive in restoring some sanity to the markets, this is the mark of panicked regulators more than a measured, coordinated approach.

The changes are primarily three-fold:

  1. Forcing the reporting of the sales of real estate that is being claimed as a principal residence to the CRA.  This will crack down on fraud where foreign and domestic speculators claimed principal residence status to avoid the capital gains tax.  While another nail in the coffin of Vancouver, this will have minimal effect on Victoria.
  2. Requiring all new insured mortgages (less than 20% down) to qualify under the benchmark rate (currently 4.64%) rather than the discounted rates you will actually pay that are some 2% lower.
  3. Drastically limiting bulk insurance for lenders.   Only mortgages under $1 million that are owner occupied and with amortizations 25 years or less will be insurable.  According to the industry, currently about half of bulk insurance loans have amortizations longer than that.    Will drive up rates for conventional mortgages.

Prior to now, only mortgages with less than 5 year terms had to meet this test, which drove most people into the popular 5 year fixed option (a whopping 72% of buyers choose a term of 5 years or longer according to 2015 data).   That change is the biggie for us because it hits the regular purchasers that form the majority of the market.   Local broker Mike Grace has summarized the anticipated impact well in the comments already so I won’t try to improve on that:

1) First timers, and high ratio borrowers will be forced into cheaper alternatives for housing, get ready to see an increased demand for condos, and cheap cardboard cutout developments out in the Westhills.

2) Increased wealth transfer between parents and grown kids. This may cause parents to pull equity out of their family home to assist kids.

3) Price drops? It’s possible for sure, but in Victoria with inventory being so tight, this may not happen immediately following the changes. Nice that the changes are happening during a seasonal slowdown, and nice that the new rules aren’t being applied to renewals. Shopping around at renewal time just got near to impossible for lower income high ratio borrowers – a good portion of the market will likely get gouged by there banks at renewal.

How many people will be affected in Victoria?   Well data on this is scarce but the VREB used to send out surveys to realtors on the characteristics of their buyers.  I dug up one from 2011 Marko provided up to date surveys which indicate that 17% of purchases were bought with less than 20% down (and thus required insurance).

percentbuyers2

If those surveys accurately reflect the market, the new regs would have affected some 94 buyers last month.  Nationally, buyers are in the habit of borrowing an average of 93% of their maximum, so there isn’t a lot of wiggle room there.

Of the people that are hit by this, it will reduce the maximum mortgage amount they can qualify for by about 20%.   12% of buyers being able to buy 20% less house will likely take some of the wind out of our sails, especially as this affects first time buyers (pure demand) disproportionately.  There are also changes to the bulk insurance regulations that may push rates up a bit for those with conventional mortgages.

By the way, funny coincidence.  The last time they instituted this change (qualifying variable and fixed terms under 5 years at the posted rate) was April of 2010.   One month later our market turned downwards.

chart

Log in or Register

341 thoughts on “What is the impact of the new mortgage rules?

  1. @everyone Ontario gave tax credits for renters filing their CRA Ontario Tax Credits forms. This form was filled out by the renter denoting the total rent paid, landlords name and addresses ( rental and owner).

    It would seem the BC – CRA and provincial treasury are sleeping at the wheel or some lobby of real estate has bamboozled politicians into ignoring the need to enforce the laws.

    If fairness is the paradigm of taxation, all income must be declared and those taking CCA and mortgage interest deductions should realize their taxable incomes might not change.

    More troubling is the smart meter usage and illegal suites creating tier two hydro billing. The reasons for creating site c dams and creating more debt for end users and tax payers comes at the hands of reporting the consumption and extrapolating into the future. If we want to accurately view problems associated with rentals, vacant owners/speculators, we should do so with measureable economic income streams. If the greater Vancouver area had raised property taxes on foreign owners and further tiered property taxes to address vacant property owners, they would have maintained sales. Releasing Canadians from high priced realty requires buyers with money, and I don’t believe a 15% transfer tax effectively addressed their needs or rights. Property tax revenue is every year and consistent in running budgets. Property taxes help fund local needs versus Christie Clarks provincial transfer tax cash grab which is just a ploy to create a false surplus come election time.

  2. Why does my nose smell a few wonderful lawsuits out there?

    You might have to come out of retirement…

  3. What worries me about this trend to multiple offers is the number that dont have a home inspection condition on them even when the house is eighty years old.

    Out of curiosity, when real estate agents draw up these no condition offers that dont contain a home inspection do they actually caution their clients against it and do they get a signed direction from their client that they have cautioned them and that their client has elected to go ahead against their advise?

    Why does my nose smell a few wonderful lawsuits out there?

  4. Just Jack:

    Getting the property appraised prior to one party moving into a second parties home makes sense.
    In many cases it is vital to know the value of assets that each person came in the marriage with.
    This is often particularly true in second or latter year marriages. ( At twenty my major assest was a rather large jar of pennies).

    And exactly how often do people follow your sensible advise?

  5. I appraise properties for a division of assets.

    But what I have been suggesting to people is that when they first shack up together that they get the property appraised then. Then it will be less of a problem if they have to divide up the asset at a later time.

  6. Just Jack

    Judging by some of my matrimonial clients some people can almost endlessly be played for a fool.
    Does that really come as a surprise.

    Will prices come down in the next twelve months, that is a more interesting question.

  7. For all those prospective purchasers that are trying to buy a house in the city. You can’t win by getting involved in a bidding war when the agent has under priced the property and allowed you 5 days before making an offer.

    The best you can do is put in your best offer and NEVER counter. Don’t invest the emotional time in these turkeys. If you don’t get the property on your one and only bid then walk. Never counter offer.

  8. Sweethome, you can played like a cheap violin. An agent lists a property under market value allowing people only 5 days to view it and then make an offer. And you are surprised it sells over asking price.

    What did you think was going to happen?

    What you should be surprised about is that it didn’t sell for more than $850,000 that’s only 13% over asking. Agents used to be able to get buyers into paying 20 and 30 percent over list price in the spring.

    Then there was the sales on Royal Wood Court and Royal Wood Place this month that sold under asking price at $882,500 and $920,000 respectively but then they were not delayed offers.

    How many times can someone be played as a fool?

  9. gwac:

    Well, it was about three years ago and i know that prices have gone up a bit but I doubt if they have doubled. The house is 7,965 sq. feet and the price was 1,650,00 paid. Lot of 26,000 sq. ft. Plus the carriage house which has a finished upper floor and a bathroom.

  10. “Actually, this was my initial thought and then I realized that you have never even experienced a real crash in Canadian Real Estate.”

    Agreed, but he will soon, along with the other smug-ass perma-pumpers who think the gravy train of free money will never end, while filthy rich retirees from back east will keep the bubble from popping. Good luck with that fantasy.

  11. You hard core bikers are a defensive lot with zero sense of humor. Kinda like the save the whale types who still stand down on the corners in the rain and wind, but there’s lotsa whales now. You got your bike lanes but half of you still don’t respect the rules of the road. I bet Introvert drives across the street to check his mail.

    BTW Introvert, I posted that news yesterday but you never read the posts, just dog pile on with the perma-pumpers who are scared shitless of the crash coming up. Never have the odds been so high. 😉

    Morneau moves to pop housing bubble just in time

    “The Liberal finance minister is finishing the work Flaherty never got a chance to start

    Over drinks in Ottawa one evening about four years ago, Jim Flaherty said he was afraid that the Toronto housing boom would become a bubble.

    “All those new condos south of Front Street down to the lake,” he said, “they’re being bought by non-residents, mostly Chinese, who are flipping them.” Flaherty feared that bubble conditions were spreading even to suburban Whitby, where he lived.

    He never got around to doing anything about it as finance minister — but he never stopped worrying about it, either.

    It’s been left to his successor, Bill Morneau, to finally take action on the runaway costs of residential real estate in two markets, Toronto and Vancouver.”

    https://ipolitics.ca/2016/10/04/morneau-moves-to-pop-housing-bubble-just-in-time/

  12. @VicRenter – “Listing prices are now often right around what the house might have gone for in a spring bidding war.”

    I agree, and also some houses are still going for considerably over asking. For example, I saw 4399 Torrington (in Gordon Head) listed for $750K and my heart sank because I would have preferred it to the house we bought (at least from the photos). However, it went for $850K, which is probably above what it would have gone for in the spring. It is a rancher, so doesn’t even have suite potential.

  13. Perhaps biking is the solution for Hawk’s personal frustration with the housing market.

    At least he can have a crash anytime he wants

  14. Now, recognizing that you established the criteria for the current bubble back in 2012, would you please let James2 know what will happen when it bursts, please.

    “It’s not going to be good. My suggestions to James2 would be to read Garth Turner’s blog archives for the last 10 years. The book Garth wrote in 2001 is also good.”

    Marko, seriously, you are going to tell James2 that the bursting of this historic bubble will not be good and then you refer him to Garth (it’s going to happen)Turner. Again, you are trying to deflect your responsibility to the consumer. Actually, this was my initial thought and then I realized that you have never even experienced a real crash in Canadian Real Estate.

    Perhaps, ask the bloggers what 1981 – 83 was like and then help your clients by advising them accordingly. Victoria will not be an island unto itself as this market implodes.

    Good luck to all.

    P.s. You have no idea what occupation these bloggers have. Probably not a great idea to talk about circumventing suite regulations when you could be speaking to a CRA agent. Just a thought. Ater all you may be the only one here who isn’t anonymous.

  15. The only time that you can get a deal on real estate is when you are the only bidder for the property. Right now it seems all the buyers want the same thing. A house with a suite in the core. Not many people want acreage and that makes acreage a good buy today. Or even water frontage in Sooke or on one of the Islands. When you are the only bidder then you don’t have to deal with crazy people bidding against you.

    If you’re buying for the long term then you should be thinking long term. People today are concentrated on short term easy profits. And there are too many of them driving up the price due to a temporary shortage. We will return to normal market conditions. Why? Because we always have.

  16. Barrister what I showed was what has been perpetuated on this blog that out of town buyers only buy in one area of expensive properties is not true. As you can see, out of town buyers purchased in all areas, all types and all price ranges throughout Victoria. They did not dominate anyone price range, type or neighborhood.

    What some on this blog like to do is instill the fear that all of of town buyers are rich Vancouverites that have sold their house for millions and are now buying up all the property. They aren’t.

  17. Took a bit of looking and a lot of haggling. The deals are always out there but sometimes one needs to be patient.

    I disagree about “deals.” I listed a property last week that was emailed to 2,700 PCS accounts. If it’s even slightly below market value, it’s going over asking right now.

    You really have to find a private seller that isn’t in touch with the market, far and few between, to get a deal; otherwise there is just too much exposure out there for something to slip in under the radar.

  18. Just Jack:

    it sounds like it pays to look around. I know that I paid about $206 per finished square foot in the core with great ocean views on over 1/2 acre plus with an extra 850 square feet in the carriage house on top.
    Took a bit of looking and a lot of haggling. The deals are always out there but sometimes one needs to be patient.

  19. Just Jack:

    I may be missing your point on out of town buyers? What stats seem to indicate is that there was a flood of Vancouver buyers last year and the flood has gotten bigger this year.Your stats also indicate that they are increasing demand both in condos in addition to houses and in every part of Greater Victoria.

    So are you suggesting that this partly accounts for the price escalation in every part and market segment of greater Victoria. If so you may well be right.

    Or are you suggesting that because they are buying in every market segment that they are not influencing the rapid rise in the upper tranche?

  20. lost 50 pounds and way less angry at life.

    Perhaps biking is the solution for Hawk’s personal frustration with the housing market.

  21. Or put another way, you will have about an extra $800,000 at retirement if you bike instead of driving. Not bad!

    You’ll be healthier too.

  22. I save 3 to 4k a year by biking. Parking/ gas/ insurance/

    Or put another way, you will have about an extra $800,000 at retirement if you bike instead of driving. Not bad!

  23. Re: more houses selling at or bellow asking price:

    I still think that this is likely an effect of the fact that asking prices are now more in line with the amount that owners are actually expecting to get for their houses, as opposed to in the spring when houses were more likely to be priced artificially low to start a bidding war. Listing prices are now often right around what the house might have gone for in a spring bidding war. So I don’t think that a decrease in over-asking-price sales is an indication of a cooling market. It’s not a sign that prices are softening. Certainly my experience of looking in the core is that they’re not softening at all.

  24. Hawk

    Full of what I really love biking. I bike to work and MTB at the dump/partridge/maple. When it rains I put on my wet pants and jacket.

    Only way I can fit exercise in daily. I used my hard tail today to go through the shit that was all over lockside and the goose. Usually use a Gravel bike. I save 3 to 4k a year by biking. Parking/ gas/ insurance/

  25. Poor Hawk. When will he be able to afford a house in Victoria? Have you considered crowdfunding a down payment?

  26. “A week into the month and we just are not getting that many crazy over asking prices anymore.

    In fact 78% of the sales this month have been at or below asking price!”

    Guess that solves the Marko hype job of Calgarians and Torontonians over paying by the planeload.

  27. “Hawk – If you are feeling the pain of so-called “gridlock” here is the solution.”

    My butt hurts just looking at it thinking of sitting on it for 40 minutes in the pouring fricking rain and wind. Somehow I think Gwac is full of it.

  28. A week into the month and we just are not getting that many crazy over asking prices anymore.

    In fact 78% of the sales this month have been at or below asking price!

    And there have been some good deals for buyers too! A one-bedroom condo in a 45 and older complex along Irma sold for $132,000 or $167 per finished square foot.

    A 3,500 square foot home with a triple garage on one acre with panoramic valley views in Cobble Hill for $530,000. PS – they don’t allow suites in this development.

    A starter home in Sooke on one acre is now $255,000. It sold previously in August 2008 at $262,000.

    A Bear Mountain beauty that sold in May 2011 at $615,000 re-sells today at $620,000

    Or if you really want to get away from gridlock. A house on Mayne Island with water views that sold in March 2010 for $540,000 re-sold this month for $425,000.

    Or a condo in Kinsmen Park bought from the developer in October 2009 at $484,00 and re-sold this month at $377,000

    There are good deals out there for some people. However nothing in the way of detached homes in the core. You still have to pay substantially higher prices until more inventory comes to the market. And when that does happen you’ll be happy that you didn’t buy a home in the core this year.

  29. CuriousCat – Thanks!

    Although not interested in having tenants, I would like to see people pay the taxes they legally should pay.

  30. What are the out of town buyers purchasing?

    Mostly condos. About 40 percent of condo sales in the core are to out of town buyers compared to 30% of detached houses.

    A lot of emphasis on this blog has been on rich Vancouver buyers raising prices in Victoria. But where have house sales to Vancouverites increased relative to last year?

    District Sales, 2016 Percentage Change
    Victoria 112.5 %
    Saanich East 172.4 %
    Oak Bay 125.0 %
    Langford 211.1 %
    Saanich West 257.1 %
    North Saanich 58.3 %
    Sooke 150.0 %
    Colwood 450.0 %
    Central Saanich 83.3 %
    Esquimalt 28.6 %
    View Royal 150.0 %
    Sidney 0.0 %
    Victoria West 100.0 %

  31. Actually LeoS, I will prepare a document in Word and email it to you instead. This way, you can post a link to it, refer to it, or whatever.

  32. Guys, I have some free time today – I will try and answer this question once and for all. I have found a Technical Interpretation that asks this exact question, but the person asking it is from Quebec and the entire document is in French. Luckily for y’all, French is my native tongue and I have the ability to translate it.

    Second of all, I have been going through the Tax Court of Canada cases from the last 20 years and have found one case where this issue was addressed. It might be surprising to most that there aren’t more cases, but usually the focus of tax cases and the principal residence exemption revolve around owner/builders claiming principal residence exemptions on homes they live in for relatively short periods of time when CRA deems them to be engaging in an adventure in the nature of trade, AND people who report multiple years of rental losses and CRA deems them not to be deductible as there is no reasonable expectation of profit.

    I will summarize my findings in posts to follow.

  33. Basement Suites:

    Just a couple of quick observations.

    1) The principal residence exemption is exactly that an exemption form the general rule. This is more important than people think. Because you are claiming the exemption it is up to you to prove that it applies. Once you have declared rent then it is up to you to prove how much was rented and how much of the house was used by you.The onus is completely on you since you are claiming an exemption. You may need a lot more documentation than you think.

    2) Secondly, in terms of the structural alteration. the present owner does not have to be the one to have done the alteration it can have been done by the previous owner. A structural alteration is just proof that goes to show that the house was converted from a principal residence use only to a rental use. For example, if the house is purpose built from day one to have a self contained rental suit that does not mean it is exempt if you actually rent the suite.

    3) while we wait for a clear and precise interpretation of the CRS policy I would certainly be prudent
    and it would be much safer to assume that any self contained suite would fall under the capital gains rules. A self contained suite virtually excludes you as the owner of having a use of it during the rental period. If you are prohibited from using it then how can it be your residence; Again, until there is specific clarification the prudent coarse would be to assume that you very well might have to pay capital gains.

    4) As number of people here have noted if capital gains do apply then renting a suite might very well be extremely detrimental to your financial health.

    5) There is a lot of talk amongst some municipalities of allowing people to build micro houses on their property. Nobody including the politicians are even mentioning that capital gains would definitely apply to these units.

  34. I agree with you Barrister, higher density is not the answer for Victoria it is the problem.

    Higher density has not lowered property taxes or improved the lives of Victorians as the infrastructure in established neighborhoods has been left to deteriorate and our environment becomes more polluted. Meanwhile developers push for smaller and smaller condos in order to maximize profits. And that pushes families out of the core and into their cars.

    Even if we stopped building hi rise towers and instead encourage low rise town house developments then that would be a better solution to bring families back to the city. If you bring down the density permitted then developers would not be able to pay these high prices for land and that would bring the price of family units down. It would also bring down the cost of construction as wood frame is cheaper than steel and concrete.

  35. Hawk – If you are feeling the pain of so-called “gridlock” here is the solution.

    ANYWHERE within the core in 40 minutes or less. Downtown Vic to Langford in 50 minutes.

  36. Tax Rulings, as I understand them, must be very specific questions rather than multiple “If…Then…” statements.

    Yes. Hence we must choose a question that would be most useful and ask that one.

  37. Gridlock is a type of traffic jam where “continuous queues of vehicles block an entire network of intersecting streets, bringing traffic in all directions to a complete standstill”.

    That just doesn’t happen in Victoria – EVER. Slow going on the TCH into or out of town is not gridlock. Having to wait 5 minutes to get across the blue bridge is not gridlock. Taking 30 minutes to go from Gordon Head to the Legislature instead of a low traffic 15 minutes is not gridlock.

    Getting around Victoria has never been super fast. In the core the streets are narrow and curvy and routes are circuitous. That is part of the charm of Victoria.

    Try to head out of Victoria up island on a Friday evening before a summer long weekend. That’s as bad as it gets. Sure that’s annoying but it is hardly an everyday situation for the vast majority of GV residents.

  38. Dear Marko:

    Re: “gridlock”

    1) First of all, I totally agree with you that traffic is getting seriously worse in the city. If the developers
    and the city politicians who almost sound like they work for them have their way we will truly have serious gridlock in the near future. There are no quick band-aid fixes for that. We are on the way to turning Victoria into a mini Vancouver.

    2) My point is that to outsiders coming from Vancouver or Toronto, Victoria seems to have a lot less traffic and seems much more desirable I have repeatedly argued that high density is not the answer but actually the problem. There really is an optimum size for cities both in terms of liveability and economic efficiency..

  39. I think the interesting question is what “basic information” about the house will be required on your tax form. I am betting it will ask if the house or parts thereof have ever been rented and/or whether it has rental suite attributes in its design. And if you lie on your tax return…!!!!

    A lot of people are going to be nailed!

  40. Hmm. My desire to build a suite in our new house (was going to be used for a combination of renting out, nanny space, in-law space) may be changing. It sounds like the CRA has been confused about their own rules, or haven’t been enforcing them for the most part. But you can’t count on that, especially with in this dynamic regulatory environment.

    If we knew the rules you could design the suite around the rules.

    i/ Make it small in relation to the house. The capital cost savings would far offset the monthly rent ratios. You could probably rent a 400 sq/ft suite for 60% of a 1,200 sq/ft suite, but you would save a ton is CGs. (I am making the assumption the size of suite in relation to house matters).

    ii/ Leave an interior staircase to suite?

    iii/ Is an exterior entrance considered a structural change if you are building new?

    iv/ Does Airbnb apply to the CGs equiation?

    It’s interesting the Vancouver is take a huge aim at vacation rentals in hopes of bringing more rental inventory to market but it seems that the CRA will be focusing on making it less attractive to rent out your basement suite which in theory will reduce rental inventory.

  41. ” I dont want to argue but you dont have gridlock in Victoria.When is the last time it took you two hours to just get out of downtown.”

    Barrister,
    Gridlock is relevant to the size of the city and the road system. If there is one accident in a handful of key intersections then many folks who live on the outside edge of the core and farther will take upwards of 2 hours to get home to Westshore as well as gridlock most of the town.

    People who move here for the laid back lifestyle, and don’t want any gridlock but it’s getting worse. Try a usual 10 minute jaunt to Uptown from say Hillside area or Gordon Head and you can double to triple it anywhere after 2:30 to 3 PM onwards or if an accident happens anywhere within 5 to 10khm.

    We’re slowly turning into a congested major city with no solutions. Getting out of Rockland at rush hour might help you see that.

  42. Hmm. My desire to build a suite in our new house (was going to be used for a combination of renting out, nanny space, in-law space) may be changing. It sounds like the CRA has been confused about their own rules, or haven’t been enforcing them for the most part. But you can’t count on that, especially with in this dynamic regulatory environment.

  43. Totoro who keeps repeating wrong information on this blog

    Er, no. I originally stated: “My understanding is that if you did not build the suite, you do not claim capital cost allowance and it is not the primary use of the residence ie. less than 50% the entire primary residence remains exempt.” And then cited the CRA bulletin on this. And I indicated that my accountant told me this, which she did. As, apparently, have some accountants in Curious Cat’s firm. I also stated in response to the first post on the new rules that things may have changed and the accountants are going to need to wait for the new bulletin on this which was not released with the announcement on the changes in reporting.

    I understand you were audited on this point and were charged capital gains on your suite. You posted:

    Where the hell are people like Totoro getting this mythical “less than 50%” of your house rented means CRA will not collect Capital Gains when the house is sold?

    First , this was not what I stated. The test is more detailed than that and includes whether there was a structural change – the factors that are considered to determine ancillary use. You will see that the tax bulletins cited here are also not at all clear on whether suites inside a home are exempt or not, only that laneway houses are not, and the test appears to be based on the variables Leo S laid out below. And the test may be changing now or being applied more restrictively – I don’t know what the new bulletin will say.

    Anyway, in response to your statement I posted:

    For the third time, from an accountant. I have a multifamily property and we are not eligible for the capital gain for the rented out portion, and we are retaining RRSP room to cover this eventuality, but my understanding from the accountant is that a separate suite that was not built by the owner and is less than 50% with no CCA claimed was not considered to remove the exemption.

    You then responded:

    Time for Totoro to ‘Get Real’. Totoro knows the CRA system but she seems committed capitalizing on “unclear rules” to manipulate it to her benefit. She claims that she relied on her accountant for tax advice that validated her desire to not pay capital gains on a suite that occupies less than 50% of a house. This is a common tactic that CRA deals with in most audits; people go shopping for an accountant who gives an answer that somewhat supports their preferred interpretation.

    Yeah, that statement is just defamatory and an outright fabrication. What I stated and will repeat again is:

    I have a multifamily property and we are not eligible for the capital gain for the rented out portion

    I have no benefit to a ruling on this as I’ve already been advised we are INELIGIBLE on the rented out portion because our property is a legally registered multifamily with separate sewer and water charges. We declare all our income and pay taxes on it. This is not an ancillary use and I have nothing to gain from “accountant shopping” or “manipulation to our benefit”.

    You really seem to have some difficulties with reading and comprehension. For your benefit, and to be clear, please read for the third time:

    This may be incorrect information. If you were audited on this point your information and this was the outcome I’d trust your information and I’d be waiting for the bulletin release to confirm.

  44. Here the insight regarding CCRA treatment. Answer is already here:

    1/advice
    http://blog.taxresource.ca/capital-gains-on-a-basement-rental/

    2/grant Thornton
    https://www.grantthornton.ca/resources/insights/articles/Laneway_housing_final_Feb_2014.pdf

    ….One of the most generous tax breaks provided to Canadian resident individuals is the principal residence exemption. Under certain circumstances, the principal residence exemption permits individual taxpayers to shelter gains realized on the sale of a housing unit that qualifies as the taxpayer’s principal residence in any given year. A key concern when it comes to laneway housing is the impact that building or renting a self-contained laneway house will have on the ability to use the principal residence exemption. The principal residence rules are very complex and professional advice is recommended anytime a taxpayer owns more than one housing unit in a year, or starts using all or part of their main home for the purpose of earning income.
    The main distinction for income tax purposes between building and renting a self- contained laneway house—versus renting out a suite in your home—is that the laneway house, and the land it is situated on, will commence to be considered a separate housing unit that is not part of your original principal residence, and unless the laneway house is subsequently occupied by a you or your child, it may not be eligible for the principal residence exemption.

  45. What is the best question to ask? Any interest from anyone else in chipping in to get it answered?

    I would be willing to chip in $50 and willing to up it to $250 if I could actually get a document on how a suite is measured for the purposes of calculating the capital gain inclusions percentage.

    I have three clients that have bought building lots in the last month and are asking feedback along the lines of do they design a home with a large two bedroom suite or a smaller one bedroom + rec room for themselves. A 800 sq/ft suite in a 2,000 sq/ft home is a big deal, 600 sq/ft suite in a 4,000 sq/ft home not so much, assuming it’s based off square footage?

    marko, as a real estate agent, you are in a unique position to get the gossip of the other agents. Who are the buyers and why are they buying, what are your colleagues saying?

    Sometimes I go weeks without seeing another agent. I have my own office. Throw in lockboxes and DocuSign no real reason to see other agents. I don’t socialize with agents either. Most of my friends are in health care or other businesses.

    Here are a few links for bedtime reading:

    http://www.realestatetalks.com/viewtopic.php?f=8&t=129605

    Pretty much what we have been discussing.

    Now, recognizing that you established the criteria for the current bubble back in 2012, would you please let James2 know what will happen when it bursts, please.

    It’s not going to be good. My suggestions to James2 would be to read Garth Turner’s blog archives for the last 10 years. The book Garth wrote in 2001 is also good.

  46. Dear Marko:

    Unfortunately, we dont have any solid numbers but my guess is that a lot of the demand is coming from out of town purchasers. First of all there are two very different markets in Victoria overall. The westshore is really a separate market from the core and also Saanich to a great degree.

    I have been residing in Victoria for just under four years. I live in Rockland so most of the people I have met live in the core. Being retired and moderately social I have gone out of my way to meet people. My impression is that there are quite a few people who have recently moved to Victoria from Greater Vancouver, Alberta and Toronto. If you sold an average house in Vancouver these days you probably got well in excess of two million. Of the newcomers who bought houses in Rockland almost all of them were from out of town and almost all the houses sold in the million plus range.

    Marko, I spent over half a century dealing with ice and snow in Toronto. I also dealt with real gridlock in Toronto. I dont want to argue but you dont have gridlock in Victoria.When is the last time it took you two hours to just get out of downtown.

    Let me put the question in a different light. Lets assume you sold your house in Toronto for two million and you just retired. Lets also assume that you are one of the people, one out of ten at least, that decide not to stay in Toronto because of family, friends or your twenty six year old mistress.
    Further assume that you dont like the idea of being a snowbird. (sure maybe that is only five percent of all Torontonians who retire; that is still a lot of people every year). Okay, now come up with a list of places too retire to inside Canada. If you are tired of freezing your ass off all winter and the arthritis is setting in because you are over sixty then the list is pretty small.Even us stupid people in Toronto can figure out that the only place with decent weather is the west coast. it does not take a rocket scientist. We might be a bit slow but you dont have to be an accountant to figure out that house prices in Victoria are about half of Vancouver (someone on this site will undoubted correct me by saying that they are actually 53.4 percentage of Vancouver and therefore I am wrong). If you check the government weather stats you also discover that there is a lot less rain in victoria and an awful lot more hours of sunshine. Besides Vancouver traffic is just like Toronto, in some places worse. Victoria also does not have a sea of highrises (city council and the developers are hell bent to change that ); Victoria is like living in a postcard. On top of that there is an incredible host of things to do and also things going on.

    So come up with a list of places in Canada that compete with Victoria. While some of the sales are speculators, mostly local, my guess is that the vast majority of out of towners are buying here to live. House prices are climbing so quickly because the people moving here simply have a lot more money than most of the people who work in the local economy. This has had an impact not only on upper end neighbourhoods like the Uplands but it has also converted other neighbourhood in the core into high price areas. You are the expert in the field, but areas like Fairfield now have an average house price of around a million from what I can see. James Bay seems to be running around 900k for what are small lots and modest homes. Even Fernwood is pushing into around 800k for many of the houses.

    it is not scientific but of the newcomers that I have meet and there has been a few not one ever mentioned that Victoria was a hot market to invest in. I am not saying that there are no investors but I suspect the market prices are mostly reflecting demand by newcomers.

    marko, as a real estate agent, you are in a unique position to get the gossip of the other agents. Who are the buyers and why are they buying, what are your colleagues saying?

  47. LeoS, count me in, I’d be happy to contribute $50 to get the final answer on this CG topic. Tax Rulings, as I understand them, must be very specific questions rather than multiple “If…Then…” statements. But the CRA experts at that earlier link I posted will provide detailed instructions.

    Here are a few links for bedtime reading:

    http://www.realestatetalks.com/viewtopic.php?f=8&t=129605

    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/dspsng/menu-eng.html

    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/126/menu-eng.html

  48. Ash, the percentage out of town buyers has returned to the levels before the big price increases earlier this year. There have always been people from out of town buying in Victoria or any other city in the world. Just as there are always people leaving Victoria for other cities in the world.

    Where the people are coming from is of little consequence. What is of consequence is whether the total sales are increasing or decreasing. The people may be of a different color but their money isn’t.

  49. Marko Juras
    October 6, 2016 at 6:01 pm

    I honestly don’t really know.

    There you go Marko, maybe you should have left it at that.

    I’m not sure whether you were being deliberately obtuse or just trying to deflect from the point. I’m hoping for the latter.

    Now, recognizing that you established the criteria for the current bubble back in 2012, would you please let James2 know what will happen when it bursts, please.

    James2
    (These rule changes are good, they will force starters to get a tiny condo instead of stretching out to a townhouse or sfh for their first home. It stabilizes the market making Canada more stable then ever.)

    Our friend seems to be a little naive regarding the ramifications of taking the bottom out of the market. Perhaps he never played Jenga.

    Perhaps, he’s considering buying. Maybe you should let him know what happens when a bubble bursts. He might buy in well after the fact and reward you by using you as a realtor for being so honest with him.

    “The feds clearly wanted to puncture the housing market and they have certainly done so,” Sherry Cooper, chief economist at Port Coquitlam, B.C.-based mortgage broker Dominion Lending Centers, said in a note to clients. “These measures will provide a tipping point, encouraging those who have been waiting to sell to put their properties on the market post haste. The combination of increased supply and significantly reduced demand will weaken prices everywhere.”

    Hopefully yours,

    Oopswediditagain

  50. I’m sure many readers and bloggers on this site would contribute $50 towards a CRA Ruling with this basic question about a self contained suite with a private entrance

    I doubt it’s a basic question. If it was it would be answered already with the millions of suites we have in this country. Common thing seems to be that people aren’t paying CG. You seem to be the unlucky exception.

    However the idea of crowdfunding this is interesting. Based on the previous ruling someone linked to it seems the CRA decided that the business with a separate entrance added constituted a structural change and hence CG tax applied on the portion. But what about the case where a suite is already in place? In this case you made no structural change.

    I believe the constants are:
    1. You are living in a detached house as a primary residence and have done so for one year.
    2. You are renting out a suite
    3. You are declaring all income
    4. You are not claiming CCA

    The variables are:
    1. You built the suite including making a structural change (adding a door)
    2. You built the suite but didn’t make a structural change (door existed, just adding non-load bearing walls + bathroom/kitchen)
    3. The suite is less than 50% of floor space
    4. The suite is more than 50% of floor space
    5. The suite is detached (laneway house).

    What is the best question to ask? Any interest from anyone else in chipping in to get it answered?

  51. LeoS said: “Why is this totoro’s job? Why don’t you get a ruling if it matters so much? I’ll chip in $50.”

    It does not matter to me, I already sold that house, told CRA, was audited for multiple years, was assessed CG tax, I paid it, and now I don’t rent basement suites… There’s no profit in it, if you’re honest. On the other hand, it seems to matter tremendously to Totoro who keeps repeating wrong information on this blog; an informative ‘HouseHunt’ blog that many first time buyers and new landlords read to learn. You’re not learning when you’re being fed bullshit!!! It would be extremely unfortunate if a young family read that mythical <50% rule, believed it, acted on it, then a few years later, after selling their house, tried to tell a CRA auditor that “I read on HHV that I would not need to pay CG, Totoro said it!!” The consequences of this from 2012 to 2016, where a house went from $500k to $900k with a suite occupying 45% of the house would mean that family must declare $180,000 in capital gains. That means 50% of $180,000 ($90,000) gets added to their income tax return as income. If their upper tax rate is 40%, then they must pay CRA $36,000 in CG taxes. It matters LeoS, not to me, but to many readers of HHV.

    LeoS- if you organize it, I’m sure many readers and bloggers on this site would contribute $50 towards a CRA Ruling with this basic question about a self contained suite with a private entrance. I will.

  52. I’ve been trying to do some research on redflagdeals.com but a few of the links are broken…

    Although CCRA Bulletin IT120 does state (or at least imply) the above it is not in fact the law. At least one court case has ruled that your home is free of Capital Gains Tax even if you rent out part of the home (the case was related to a triplex which had separate entrances etc.) More info here http://www.featureweb.com/vancouver/experts/answer.asp?id=1379&cid=63

    Every second home in Vancouver has a basement suite and I think that I can safely say that not many of the houseowners are paying any capital gains when they sell their house.

    Anyone familiar with this triplex case? Link doesn’t work anymore.

  53. Based on current rules, does anyone know if suite-related CGs are due when the owners boot out the tenant, or when they eventually sell? I understood it to be at the time of sale, not the deemed disposition (otherwise how are people coming up with the cash?)

  54. “Of the 16 sales over $1,000,000 since Monday 9 have gone to out of towners.”

    Wow. Can’t deny the impact of out of towners right now.

    BTW, the latest Vreb headline gave me a chuckle (re: the fall market chilling out). I have to think they are doing what they can to fend off any desire for a 15% foreign buyers tax or other measures. They could have totally spun the stats the other way, but chose to keep a low profile and out of the headlines.

  55. Aren’t speculators pure demand?

    Yes good point. 4 players then.

    Speculators just took a big hit with more expensive capital for rentals and a souring environment for Airbnb
    First time buyers took a big hit with stricter qualifying.
    Out of towners are up a lot but the numbers from Vancouver might decrease going forward.
    People leaving Victoria is probably about constant while people dying will slowly increase as the population ages.

  56. Doesn’t answer most of our questions, but:

    Also basically repeats exactly what we’ve been going back on forth on. It’s complex and most people in reality haven’t been paying capital gains when they sell their suited home.

    “The tax rules around principal residences are so complex that many Canadians simply don’t recognize when they might owe tax when they sell a property. Many have assumed that every sale of a residence is always tax-free thanks to the principal-residence exemption (PRE). And the taxman has not required Canadians to report the sale of a principal residence if the PRE will shelter the full gain from tax. The result has been that many have sold residences, have not reported the sale, have paid no tax, even in situations where tax should have been owing. These dispositions have gone largely undetected by the taxman. That’s changing.”

  57. Reality sucks though, West Vancouver market is tanking.

    West Vancouver’s summertime housing sales slump by more than 50%

    “To me that’s a significant slowdown,” said Brent Eilers, a Realtor with Remax Masters Realty, who said that number could be even lower, depending on how figures are calculated.

    Bidding wars have largely vanished, he said.

    “We haven’t had a British Properties home sell for over $6 million since May 27,” he said. “The West Van market is really struggling.”

    http://www.nsnews.com/news/foreign-buyers-tax-cooling-red-hot-market-1.2360343

  58. Now that sounds a bit nosy and paranoid. Haven’t been paying your CRA dues Introvert ?

    Nosy — yes. But most of us here are anonymous, so little harm in asking/knowing. It’s ironic that you are head of the Etiquette Police.

    I pay all my taxes and declare my rental income. Also, I see you’re unaware of the definition of paranoia.

  59. “The only players that matter are:

    First time buyers (pure demand)
    Out of town buyers (pure demand)
    Sellers who are not re-buying in Victoria (pure supply).”

    A huge chunk of FT’ers just got shut out of the game.
    Vancouver sales tanking due to Van market tanking, limited time offer to get out and move here.
    Sellers leaving Victoria which no one wants to even think anyone in their right mind would leave Mecca. Or they decided to take the lottery money and rent.

    All 3 have a strong chance of turning the Victoria market south in a hurry.

  60. Are out-of-towners buying in Victoria because the market is hot or is there a fundamental demand across the country to move to Victoria irrelevant of the market performance in Victoria?

    Mostly the latter, and it’s quite clear it will last for the next 15-20 years as the number of boomer retirees mushroom.

    ?w=800

  61. “I just paid the Capital Gains and moved on.

    May I ask what the figure was?”

    Now that sounds a bit nosy and paranoid. Haven’t been paying your CRA dues Introvert ? 😉

  62. The electric car tech is changing almost daily so I wouldn’t count out Daimler, they won’t let anyone dominate their Euro market. Tesla has big money problems too though I like their car.

    Wondering why you keep cherry picking the big sales to make them appear the norm ? A few rich fools doesn’t tell the whole story when we just had market changing news that the market hasn’t had time to even digest.

    Never see you post daily price reductions or those that sell below asking. You’re sounding a bit desperate for sales (and fearful of a crash) posting on here more than usual instead of busy writing up sales contracts. Guess business is slow for a “hot market”. Just sayin.

  63. I do think the out-of-towners are possibly starting to influence the market to a significant degree?

    Definitely. I didn’t think so before, but with the surge in Vancouver buyers it’s a different story.
    Yes 70% of buyers are locals, but it really doesn’t matter how many people sell their house in Victoria and buy a different one. Whether there are 500 or 5000 such buyers, they are simply adding one unit of supply and then subtracting one. Zero net effect.

    The only players that matter are:

    1. First time buyers (pure demand)
    2. Out of town buyers (pure demand)
    3. Sellers who are not re-buying in Victoria (pure supply).
  64. LeoM – I found a technical interpretation that’s fairly close: http://www.dieleman.ca/newsletters/20150515%20-%20Principal%20Residence%20-%20Partial%20Conversion%20to%20an%20Office.pdf

    Very interesting. “CRA opined that the opening of an exterior wall would be considered a structural change. Therefore, a disposition would be deemed to occur. ”

    In other words, most likely a suite (almost all of which have a separate entrance) would also qualify as a disposition, and if it was in place, would trigger capital gains.

  65. Marko, I had an interior staircase between floors with a locked door between the main floor and the suite. It didn’t make any difference to CRA; they still charged me Capital Gains. Thankfully I was totally upfront and honest during the audit; they told me I avoided huge penalties by being upfront and honest by visiting their office on Vancouver Street immediately after I sold the property and discussing my house history with an auditor’s assistant. I alway declared the rental income so CRA said they would have contacted me if I hadn’t contacted them first. As soon as a homeowner stops declaring rental income from a suite, the CRA system computers flag your tax return. If you file your tax return for the year you sold your suited house and don’t declare the capital gains, then you are subject to a huge penalty assessment when CRA initiates an audit.

    The CRA Golden Rule is to contact CRA with your situation before they contact.

    I just paid the Capital Gains and moved on.

  66. You doubt just about everything but it was in an article from Paris Auto show Mercedes launch. They will dominate Tesla within a few years.

    and Elon Musk says Tesla will produce 500,000 cars in 2018…..love Tesla, love Elon, but yea right. They will be lucky to be in the 300,000-350,000 range. Have to take everything with a common sense grain of salt.

    I spoke with the ceo of Rimac this summer at lenght and I really doubt Mercedes will be the company positioned to challenge Tesla. Rimac sells a lot of their technology to large automakers so they have a pretty good idea of where everyone is at.

    BMW is in a better position. Even Chevy is ahead of benz.

    Funny how you can predict monthly sales based on 4 days and but I make a guess based on 7 and get condemned. Bit hypocritical but salesmen have that habit.

    If I am off at the end of the month please do point it out.

  67. You doubt just about everything but it was in an article from Paris Auto show Mercedes launch. They will dominate Tesla within a few years.

    Funny how you can predict monthly sales based on 4 days and but I make a guess based on 7 and get condemned. Bit hypocritical but salesmen have that habit.

  68. James, I am impressed with your optimism, but I tend to lean towards Marko’s review of what a market bubble is really about.

    I am shocked at how accurate my prediction was for 2013!

    Perhaps Marko can explain to you what has happened over the last 4 yrs.

    I honestly don’t really know. I strongly believed that I would never see double digit YOY increases in my real estate career. My reasoning for this was absolute prices were already huge when I started in 2010. While I saw how a house could go up from $200,000 to $230,000 in one year I didn’t really think there was enough lee-way in affordability left on the table for a house to go up from $800,000 to $880,000 in the course of one year. Let alone what we saw in the last 12 months.

    The last four days I’ve been looking at some insane sales and the “buyer city,” and one theory that is growing on me is I do think the out-of-towners are possibly starting to influence the market to a significant degree? Not 100% convinced yet but I’ve been looking at the “buyer city” with interest as of late.

    Today alone a few buyers from the US picked off some waterfront properties, a Calgarian paid 150k over asking price on a $2+ million property, a Torontoian dropped near a million on a 1,400 sq/ft rancher in Sidney. Vancouver and Surrey buyers sprinkled in there amongst the group of sales going pending today as well. The absolute number of out-of-towners is growing. I would just like to understand if this absolute number would remain high if the market slowed (less locals buying). Are out-of-towners buying in Victoria because the market is hot or is there a fundamental demand across the country to move to Victoria irrelevant of the market performance in Victoria?

  69. I’ll wait for the Mercedes electric , rumor they will have a 5 minute recharge.

    Doubt it, they would need DC current input for that kind of recharge time. BMW needs to get their crap together and bring an all electric 3 series to market for $50k and 250km range. They obviously have the technology (i3).

    One car I drove a few times in Europe that was half decent is the Golf electric. Similar specs as the Leaf but doesn’t look like crap.

  70. James2

    “Going forwards, sfh will go up because there is no more being built and these rules don’t affect that market, condos will go up, because less developers will build because less can afford what it costs to build these days.”

    James, I am impressed with your optimism, but I tend to lean towards Marko’s review of what a market bubble is really about.

    https://youtu.be/t5RlbUYQNBU

    As Marko explains, there was no bubble in Victoria prior to 2012 because price appreciation in: for example Oak Bay simply doubled between 1993 and 2012 hardly something that would be considered a bubble. Price went from $250,000 to $600,000.

    Perhaps Marko can explain to you what has happened over the last 4 yrs. in for example: Oak Bay and then he might enlighten you on the highlights of a bubble bursting.

    Good luck

  71. Ontario about to get the 15% foreign buyer tax. Sounds like Justin had some deep talks with China about money laundering.

    I’ll wait for the Mercedes electric , rumor they will have a 5 minute recharge.

  72. Something a little ironic about you trying to speak over the noise of a massive generator truck at an electric car rally.

    Very ironic. We were trying to promote eco tourism in Croatia yet we had this massive generator tagging along 🙂 Tesla supercharges don’t work well when you have 30 Teslas travelling together.

  73. Some differences in taxation of gains on a principal residence between Canada and the U.S.:

    Any U.S. exemption is limited to $250k ($500k for a married couple) and,
    the criteria to be eligible for any U.S. exemption is more restrictive than the Canadian rules (for example, the U.S. rules required the property to be owned and occupied for at least 24 mths in the 5 years prior to the sale).

  74. At the end of the day what are we arguing about here? I am concerned my house will go up a million and I’ll maybe have to pay some tax? lol……..first world problems. Just quit work for a year, sell the house and have the capital gains in the lower tax brackets.

  75. @Barrister

    Is anyone else getting the feeling that the Feds are fairly confident that interest rates are on the way up?

    More like the opposite. Now they can drop rates without adding more gas to the real estate fire.

    @Marko

    First of all I took 7 weeks off to go to Europe to reduce my income; whereas, the year before I didn’t vacation.

    Sounds like you should be thanking Trudeau for forcing some work/life balance on you!

    The insane silver car behind me in this video -> https://www.youtube.com/watch?v=Umd08hGUtNI

    Something a little ironic about you trying to speak over the noise of a massive generator truck at an electric car rally. 🙂

    The real life enforceability and interpretation is just brutal.

    You’re presuming the CRA cares about being fair or reasonable.

    @LeoM

    But instead of gong to CRA and requesting a CRA ruling on this simple question (CRA charges less than $1000 for simple Rulings) she continues to claim the <50% rule must be true because her accountant says so.

    Why is this totoro’s job? Why don’t you get a ruling if it matters so much? I’ll chip in $50.

  76. If anyone is still following the market, based on the first 4 days looks like we are on pace for around 800 for the month. My prediction is we will fall a tad short of the 836 record set in 1992.

  77. It would be a lot easier for the CRA to enforce this if 99% of suites weren’t put in without a permit. If individuals actually took out permits the CRA could just pull the blueprints and assess a correct percentage to the suite without any back and forth.

  78. It would be fun to hear someone argue they need two stoves, two washer and dryers, sound-proofing between floors, separate meters, a fire door between the upstairs and downstairs and all those other things that are required if you want to build a legal suite.

    Not really; adult children, parents, nanny, etc.

  79. I believe LeoM indicated a few times that he has paid capital gains on his suite.

    Yea but his explanation has a lot of real life loop holes in it as well. I have an interior staircase in my house. I hypothetically stuff a friend in the suite. He or she uses the exterior entrance for 5 years. I sell the home and claim my friend used the interior staircase the entire time. The real life enforceability and interpretation is just brutal. There is no where in the tenancy agreement that specifies private entrance or not, etc.

    You illegally turn the 500 sq/ft garage into a heated gym. Now your house has gone from 2000 sq/ft to 2,500 sq/ft but is your 600 sq/ft suite proportional to 2000 sq/ft or 2,500 sq/ft for calculating capital gains?

    List of examples is super long.

  80. “The portion of the property used for rental is small in proportion to the whole property,
    You do not make any structural changes to make it more suitable for rental purposes, and
    You do not claim capital cost allowance on the part of your rental.”

    So basically, if your suite has separate laundry, separate kitchen, and a separate entrance, then you’ve made it more suitable for rental purposes. It would be fun to hear someone argue they need two stoves, two washer and dryers, sound-proofing between floors, separate meters, a fire door between the upstairs and downstairs and all those other things that are required if you want to build a legal suite.

  81. “So why haven’t I ever heard of a real life case where someone has paid capital gains on a suite?”

    I believe LeoM indicated a few times that he has paid capital gains on his suite.

  82. “According to this (don’t know whether correct or not) it really makes sense to have an interior staircase down to the suite and Airbnb would be safer than long term tenant.”

    I doubt CRA would look at it that way.

  83. A lot of different things come up using google….

    “Exclusions To The Change In Use Rules

    If you decide to rent out a basement or other rooms in the house, you are not considered to have changed use if:

    The portion of the property used for rental is small in proportion to the whole property,
    You do not make any structural changes to make it more suitable for rental purposes, and
    You do not claim capital cost allowance on the part of your rental.
    Meeting these requirements means the property continues to qualify as a principal residence.

    In reading CRA interpretation bulletins, it appears that the CRA’s position is that if the basement unit is fully self-contained and is rented on an on-going basis will cause a change in use outlined above. If on the other hand, the basement has a shared entrance or if the rental of the unit is periodic and sporadic, it is unlikely a change in use would be triggered.”

    According to this (don’t know whether correct or not) it really makes sense to have an interior staircase down to the suite and Airbnb would be safer than long term tenant.

  84. “So why haven’t I ever heard of a real life case where someone has paid capital gains on a suite?”

    I am sure there are lots of things you haven’t heard of.

  85. I know — and I’m not mad at cha. Maybe a little envious. On the other hand, you probably work a crazy number of hours. How many hours a week do you work?

    Depends on whether you include the 15 to 30 minutes every day I spend typing away on HHV.

    Probably 60 hours per week. I’ve become lazier. I was doing 70-80 hours per week last year.

  86. Someone here said: “Let’s be real – when people purchased their homes they knew the tax rules.”
    Then Totoro responded with:
    “Okay, let’ be real – the rules were not clear.”

    Time for Totoro to ‘Get Real’. Totoro knows the CRA system but she seems committed capitalizing on “unclear rules” to manipulate it to her benefit.

    She claims that she relied on her accountant for tax advice that validated her desire to not pay capital gains on a suite that occupies less than 50% of a house. This is a common tactic that CRA deals with in most audits; people go shopping for an accountant who gives an answer that somewhat supports their preferred interpretation.

    But on the other hand Totoro knows the real CRA system for obtaining a legally binding interpretation from CRA; she has mentioned it more than once on this blog; its called a CRA Ruling. Totoro knows about CRA Rulings and she knows how to apply to CRA.

    Totoro has always known about the tenuousness of the mythical <50% of house being rented rule; it has been repeatedly discussed on this blog for years. But instead of gong to CRA and requesting a CRA ruling on this simple question (CRA charges less than $1000 for simple Rulings) she continues to claim the <50% rule must be true because her accountant says so.

    Anyone can apply to CRA with a tax question; and obtain an official legally binding Ruling. Their fee is $100 per hour for the first 10 hours of research and responding, then $155 per hour for each hour over 10 hours. Simple questions like whether or not your basement suite will trigger capital gains when the house is sold, will cost less than $1000.

    http://www.cra-arc.gc.ca/tx/txprfssnls/srvcs/menu-eng.html

    http://www.cra-arc.gc.ca/E/pub/tp/ic70-6r7/ic70-6r7-e.html#sec8

  87. It’s not my fault society rewards flipping paper versus working a honest job at the hospital helping people.

    I know. And I’m not mad at cha. Maybe a little envious. On the other hand, you probably work a crazy number of hours. Out of curiosity, how many hours per week is it?

  88. It isn’t and the tax act handles this (this was talked about below) – deemed disposition/acquisition from change in use

    So why haven’t I ever heard of a real life case where someone has paid capital gains on a suite?

  89. On your next trip to Europe try to meet up with some other real estate agents and give then some promo material on buying houses in Victoria. You might rustle up some new business

    Interestingly enough, I went on an electric car rally in Croatia and made friends with the owner of the first ever production Rimac Concept One. The insane silver car behind me in this video -> https://www.youtube.com/watch?v=Umd08hGUtNI

    Him and his wife live in the US and want to relocate here, he grabbed my business card. Talk about totally random.

    Now I can tell my clients when I ditch them next time that I am in Europe “networking” and looking for overseas buyers for their home.

  90. “If you own a house for 20 years and rented the suite for 1 doubt it will be the same treatment as someone who owned a house for 20 years and rented for 20 years.

    It isn’t and the tax act handles this (this was talked about below) – deemed disposition/acquisition from change in use

  91. Marko, what a problem to have: you make too much money! So much, in fact, that you have to go on extended European vacations to stop yourself from earning!

    It’s not my fault society rewards flipping paper versus working a honest job at the hospital helping people.

  92. Marko:

    On your next trip to Europe try to meet up with some other real estate agents and give then some promo material on buying houses in Victoria. You might rustle up some new business and the contacts would be useful for any present clients that are thinking of moving. (you might have to live with the fact that this is also a proper business expense that is deductible from income taxes, if legitamately done within all the guidelines and rules.

  93. I’ve mentioned my friends who just bought a house with a suite in it this spring on this blog before. I told them about the capital gains conversation that we’re having here and they freaked out.

    They started renting out their suite to a student in September and the lease is for 12 months. They most likely want the suite space back for themselves after that 12 month period, but they’d possibly consider allowing the tenant to stay for a total of 2 years. (Their plan is to make some cash from the suite to cover a few small reno projects on the house and then they’ll likely never rent it out again.) Their concern now is: What happens with the capital gains tax when they go to sell in 20 years even if they only rented out the suite for their first year or two in the house?

    They were always planning to claim the income on the suite on their taxes, but they said that if they’d known about any kind of capital gains tax also applying to the suite they never would have bothered to rent it out. I wouldn’t be surprised if other people in their situation now decide not to report rental income when they otherwise would have.

    “Actually yif you have a suite in the basement of your house how does this effect your home insurance; does anyone know what the increase in premiums would be?”

    My friends said that their insurance premium increased by only $59 dollars this year once they let their insurance company know that they had a tenant. They were surprised the amount was so low.

  94. First of all I took 7 weeks off to go to Europe to reduce my income…

    Marko, what a problem to have: you make too much money! So much, in fact, that you have to go on extended European vacations to stop yourself from earning!

    Must…stop…making…money!

  95. There is no proof that there will be any cap gains tax on housing rentals that are less then 50% of a house. Let’s wait and see before spazzing out.

    According to some on the blog this rule already exists and one should be paying capital gains on the suite portion, even though I’ve never actually come across it in real life.

  96. Marko – it sounds like you weren’t planning on paying capital gains tax until these enforcement measures came up. And too bad if you stop renting as it will be a deemed disposition so pay up! Continue renting out makes sense after all??

    I wasn’t thinking about capital gains when I built the home but I designed the suite kitchen in such a way that it would make a super quick conversion to a “bar.” All the appliances and the sink I placed against the linear wall and the there is nothing in the island in the way of appliances or plumbing. Simply pull the island and you have a bar/media room.

    Realistically there is a legal way around everything. Income taxes went up for me last year so I did a couple of things. First of all I took 7 weeks off to go to Europe to reduce my income; whereas, the year before I didn’t vacation. This is equivalent to me not renting my suite going forward if it turns out there will be capital gains. Second of all, I am incorporating my business and based on my accontants calculations going for my corporate tax+personal tax will be less than half of my personal tax bill currently, all legal. In the same manner I am sure there will be rules around the capital gains and the suite. If you own a house for 20 years and rented the suite for 1 doubt it will be the same treatment as someone who owned a house for 20 years and rented for 20 years.

    Then there is the worse case scenario….I just keep the house and rent it out when I am done with it in 20 years. At that point everything will be dated anyway, perfect for renting.

    Definitively won’t lose sleep over this.

  97. Is anyone else getting the feeling that the Feds are fairly confident that interest rates are on the way up?

  98. General:

    For what it is worth I phoned Murray Rankin to see if he could get a clear yes or no answer from Canada Revenue.

    The question I gave him is:

    I live in my principal residence. There is a self contained rented suite in the basement with a completely separate entrance. The suite covers 20% of the total floor space. Do I have to pay
    capital gains tax when I sell the house on that portion that is the suite?

    That is a pretty simple question that should elicit a yes or no to it.

    I will let you know what, if anything, I am told. There is something seriously wrong with a tax code that not even accountants can figure out.

  99. “if price appreciation continues to shoot up, well, guess that’s a good problem to have”

    exactly!

  100. Ok let’s calm down here folks.

    There is no proof that there will be any cap gains tax on housing rentals that are less then 50% of a house. Let’s wait and see before spazzing out.
    I just called Adams Storage and they have a lot of availability and they said they haven’t seen a lot of Albertans filling up there place, in fact there is more available room now then normal.

    These rule changes are good, they will force starters to get a tiny condo instead of stretching out to a townhouse or sfh for their first home. It stabilizes the market making Canada more stable then ever.
    Going forwards, sfh will go up because there is no more being built and these rules don’t affect that market, condos will go up, because less developers will build because less can afford what it costs to build these days.

    Rents will go up also because more people renting.

    These rule changes just stopped developers from building and first time buyers from being able to get into the market into a larger place. Think tiny tiny micro condos for 30 year old 2 income blue collar workers

  101. Marko your Oaklands example is very similar to my experience. Bought in 2015, rented out the suite immediately, meanwhile the price went up ~150-175k. Definitely didn’t make anything on the suite if CGs apply! Going forward if price appreciation continues to shoot up, well, guess that’s a good problem to have? In any case we plan to stay here for 20+ years and take over the suite in a couple years time, so on the whole , not too worried about it.

  102. I did a bit of snooping and was able to find the townhouse this guy is selling on mls. (I know it’s his, because the baby’s room had his kid’s name on the wall.) It looks like he just dropped his asking price by $5000 today! Guess he’s spooked. But, like the other gentleman said: “at least you have a place to live – you can just stay where you are.”

  103. Barrister – I am not sure what you are getting at. If you use part of your house as a business (i.e. rent) then it should be treated like a business otherwise it is unfair to other types of investors. My investments (non-housing) have gone up partly from inflation and partly from real growth and I would need to pay CGT on all of it.

  104. Dear ReasonFirst:

    For most people who have been in their house for thirty years, most of that gain is not purchasing power but just inflation adjusted dollars. They bought when a chocolate bar was a nickle and they are
    selling when that same chocolate bar is $1.25. A cup of coffee was a nickle and now it is almost $2.00.

    Put another way, that $50,000 house they bought thirty years ago has to sell for a million for them to break even. I am not saying that my numbers are dead on but I think you must get the point I am making.

    I know that we are in the middle of a boom but over the long run real estate has more often then not basically kept up with inflation. Also, try figuring out what the average Canadian has paid for a house when you include all the interest payments. Particularly ask your parents how much they paid in interest because they did not have the artificially low rates of 2.5% that people are getting today.

  105. I was eavesdropping on a conversation at dinner yesterday. A young father was lamenting that he now had to come up with an extra $15,000 downpayment or buy before Oct 17th thanks to these new rules. He currently owns a townhouse in Langford, in a complex of 25 units or so and he said the reason he wanted to move was not for more space, but mainly to get away from the neighbours. The unit next to him had tenants that were parking in his space, smoking weed, etc, (his baby was screaming so a lot of the conversation was muffled, but bottom line was he was fed up with the complex). The older gentleman he was talking to was from Edmonton and had sold his condo there and was sympathizing with having to deal with a strata, but he kinda went “oh that’s too bad, uh huh” and proceeded to go on and on about the tough rental market. He said at the storage facility he uses, Adams, they told him that all the storage in Victoria is full now, thanks to people moving here from Alberta and storing their furniture as they can’t find a place to buy or rent.

    That’s my anecdotal story for the day.

  106. So let me get this straight – my parents, who’ve lived in the same house for 40 years, and which has increased in value by 1m, should pay capital gains on 960K? How, exactly, do they afford to buy a rancher to live out the rest of their days? Anyone trying to make a lateral (or up) move would be screwed.

    You are looking at this in a vacuum just like totoro did. Let’s say capital gains were taxed and always had been. That would mean your parents’ property would not be worth anywhere near $1M.

    Like you say, applying such a change now would crash the market, but having it in place the whole time would have prevented the massive runup in the first place. Not saying it is or isn’t a good idea.

  107. No it was never rented. We’re only talking about paying capital gains on the rental portion? Primary residence is always CG-exempt? Maybe I missed it but it appears there are some people suggesting it should not be (uplands discussions below).

    @Reasonfirst – They would need to significantly downsize and/or change the area they’re in, if they were taxed on CG when selling to re-purchase. If the primary residence exemption (without rental) rules were changed, they’d have to settle up a pretty big tax bill prior to purchase. And no relief via RRSP…they’re into the ‘must use’ territory.

  108. So let me get this straight – my parents, who’ve lived in the same house for 40 years, and which has increased in value by 1m, should pay capital gains on 960K? How, exactly, do they afford to buy a rancher to live out the rest of their days? Anyone trying to make a lateral (or up) move would be screwed.

    I suspect this kind of change would utterly shatter the housing market and probably trigger a recession.

    At least some of the suggestions below seem to be viable alternatives…

  109. Home owners are the cash cows of our society and all levels of governments want a piece of that revenue pie.

    Back in 1994 a million dollar property in the city paid $10,000 a year in property taxes. Today a million dollar home pays half that amount. That shows that there is a lot of room for more taxes to be gouged from home owners.

    Have any of us heard any politician talk about fiscal restraint? Nope, it’s spend, spend, spend.

  110. What I think is kind of ironic about this conversation about rentals and capital gains is that people who are facing (and crying over) a huge capital gains tax bill also saw even huger (is that a word introvert?) net gain.

    a sarcastic boo-hoo to you….

    If you didn’t base your business decision on potential tax implications there’s an even bigger boo-hoo. – and Marko – it sounds like you weren’t planning on paying capital gains tax until these enforcement measures came up. And too bad if you stop renting as it will be a deemed disposition so pay up! Continue renting out makes sense after all??

  111. Ideally we would tax capital gains on housing, and cut income and small business taxes.

    I think there is some economic rationale for the principal residence exemption. If principal residence capital gains were fully taxed it would have the effect of decreasing labour market mobility. People would be less likely to move to take a job if selling their place meant a huge tax bill.

    At the same time I think the current system is too loose and open for abuse. I’d support a tax system along these lines:

    PR sold within one year of purchase – 0% exemption, 1-2 years – 20% exemption and so forth till after five years the gain would be fully exempt. In that way people would not be taxed excessively for inflation (typically only a few percent per year). Nor would the typical person selling after a couple of years to move elsewhere be taxed heavily. In a typical market the capital gain in that period would be modest. The taxation burden would fall on crazy markets and on short term flippers. The first is something that should be discouraged. The second should probably be taxed as income, but better to at least catch it as a capital gain and tax it partially.

  112. Hawk….thanks for the link. This is a very good move. I suspect that with the imposition of the foreign buyers tax, many foreign buyers simply figured out that if they went through a lawyer instead of a real estate agent, it was “Game on”.

  113. Barrister,

    The fact the government is trying is the most important point. Perceptions are everything. They have finally woke up and money launderers and tax evaders will now be leaving or have already left to easier locales.

    Changing a criminal’s behavior who has ran rough shod over a whole province for decades with no push back is a major shift in government policy and real estate pricing which is clearly headed down wether it takes weeks or months. There is a housing crisis and they are not stopping at anything to kill it.

    I have stated so many times before there will be a major catalyst beyond interest rates that alters the easy credit lending system. It’s now happened, so if you’re in it to make money it’s your last chance to make the big bucks now while a few sheep still linger.

  114. “I’m thinking to be fair, they will NOT go back to pre Jan 1 2016 to determine the cost of the house, so any gain, if you sold in 2016 should be minimal, because how else can you prove what the value of your house was on Jan 1, other than by property tax assessments? ”

    Well Curious Cat that’s where I come in.

    Back in 94 the BC assessed value was close to market value so CRA allowed the owner the choice of declaring a value by using the government assessment with a 10 percent over allowance or have the property appraised by an accredited real estate appraiser such as myself.

    Since most properties are selling over 30 percent of their July 1, 2015 assessed value, most owners would elect for the formal written appraisal this time. The professional appraiser will value the property under the hypothetical condition that the property had been exposed to the market for a reasonable period of time and sold on October 17, 2016. Opinions by real estate agents are not acceptable as the reports must be dated, signed, written to Canadian Universal Standards of Professional Appraisal Practice (CUSPAP) and covered by E & O insurance. You can have the appraisal done now or when you sell in the future since most appraisal firms retain historical sales data.

    CRA also employees Real Estate Appraisers to review your information. And the penalty for “cheating” in 1994 was to double the tax.

  115. Leo:

    We have a fertility rate of 1.6 children per woman. You need a fertility rate of about 2.2 to break even. The only source of increasing population is immigration.

  116. Dear hawk:

    The issue of solicitor client privilege is a lot more complicated than most people think. Do a bit of reading on it and you will have a lot better insight into the public policy concerns that actually are involved.

  117. On population:

    My point is that we have control of the level of population in Canada. We do not have a naturally increasing population to deal with. We can either increase, decrease or just stabilize the population were it is today by regulating the amount of immigration. Which is the best policy to take is open to intelligent debate.

    What is not open to debate is the fact that we dont have a naturally growing population.

  118. About time the lying scum lawyers have to cough up their criminal clients. The SS BC-Titanic is taking on water real bad. 😉

    Ottawa will attempt to close Fintrac lawyer loophole

    “The federal government will try to close a loophole in Canada’s anti-money laundering system that excludes lawyers from having to report suspicious transactions, Postmedia has learned.”

    http://vancouversun.com/news/national/aml-changes

  119. Marko:

    Before one discusses capital gains on housing lets step away from the recent housing bubble for a moment.

    First, one has to recognize that capital gain taxes are often, over the long run, a government tax grab simply based on the very inflation that government policy creates. Let me give you an example which makes it clearer. My father bought a house in Nova Scotia for 10,000. At the time chocolate bars were a nickel. Thirty years latter he sells the house for 200,000. But now chocolate bars are a dollar. If you start taxing his enormous profit of 190,00 that might at first glance sound fair but
    stop to think about it for a moment. Basically you are saying that while you have the same amount of chocolate bars that you did thirty years ago we are going to grab a lot of them for ourselves.

    My point is that capital gain taxes are more complicated than one thinks. My real concern when it comes to taxation is the knee jerk reaction that so many people seem to exhibit on this topic.

  120. So in spite of what developers would like one to believe Canada does not have to suddenly build massive amounts of housing because we have millions of extra people that we need to house in the future.

    Yeah, a declining population is not good for baby boomers, the economy, or the future of Canada. Look at Japan. Canada’s population is actually increasing at about 1.3% per year due to immigration and there are millions more people now than there were twenty years ago. Immigrants are often the same folks who are working in the jobs that keep boomers comfortable and they pay into CPP to keep the system functioning. Controlling immigration for negative growth is not really an answer to anything except future hardship imo.

    Could just institute capital gains for everyone and people stop using the housing stock as an investment.

    Tax policy is based on fairness and economic impact – unlike, say salaries, which are determined by the free market.

    I’d say the windfall upper end of the capital gains cannot be justified on these grounds but a reasonable exemption certainly can. Housing equity subsidizes government payments for things like health care and elder care in general. Many people do not have any other savings when it comes to retirement. Plus housing at a reasonable price provides good economic stimulus in the market imo. Home ownership is generally good for the economy and for families, it is only when things get out of hand in HCOL areas that these issues arise. In lower cost areas the issue is moot already.

  121. Someone who buys in the Oaklands in 2014 for 600k and sells for 800k today, isn’t getting 2-4% per year appreciation on their house.

    The 2 to 4% I was using to illustrate that on a $1,200 gross suite rental you would be paying $1,000 a month in tax give or take depending on your income tax bracket.

    If we applied what has happened in the last few years you would actually literally be losing of money on a suite rental.

    Rent Oakland’s suite for $1,200 x 24 months = $28,800. Expenses/income tax/etc., $14,400 in your pocket.

    $200,000 appreciation x 0.4 (size of suite) x 0.5 (capital gains) x 0.4 (income tax bracket) = $16,000

    $14,400 – 16,000 = $1,600 loss.

  122. Marko:

    It is morning and I have reverted back to having a civilized discussion.

    I often find it helpful to actually look at some facts rather than working on assumptions. Lets see what we can agree on at this point.

    First, Canada has a natural negative birth rate at this point. The fertility rate is 1.6 children per woman. The replacement rate (the number to keep a population stable) is generally considered to be 2.2.children per women.

    By controlling just immigration alone the government can keep the population stable or even have it reduce further. On top of that a large portion of the population are baby boomers. When they start dying off, which will be over the next ten to fifteen years. there will be a noticeable decline in population.

    So in spite of what developers would like one to believe Canada does not have to suddenly build massive amounts of housing because we have millions of extra people that we need to house in the future.

    What we do have is a shifting population and the best way of managing that is very different. That is open to discussion in an intelligent way but let us first get rid of the myth that are population is booming.

  123. @Marko, Someone who buys in the Oaklands in 2014 for 600k and sells for 800k today, isn’t getting 2-4% per year appreciation on their house. They deserve the 200k as much as the oak bay millionaire deserves their 1.2 million, which is not at all.

    Also, totally agree, anyone who can own a million dollar house, can pay capital gains. Could just institute capital gains for everyone and people stop using the housing stock as an investment.

  124. At the rate things are going Victoria will become just another “American” city within twenty years.

    Here’s the thing, everyone prefers different things. For you coming from LA, Victoria is a quaint little place on the verge of getting too big. For my parents and my wife’s dad it’s already way too big and way too busy. My dad said Victoria used to be a nice town 20 years ago when he first saw it. Now it’s endless traffic and too big. Wife’s dad retired to the north island because Victoria is way too busy. Then there’s people that still think Victoria is too small and boring.

  125. We transfer wealth via income tax brackets why not via real estate.

    Ideally we would tax capital gains on housing, and cut income and small business taxes. Encourage people to work instead of encouraging people to speculate on houses.

    There was an article about how more wealth was created from appreciation in Vancouver housing than all the incomes in the region combined. That is sickeningly backwards. Luckily it’s not an issue anymore but the incentives need to be structured to avoid rewarding this kind of nonsense.

  126. Haha.
    Lawyer/barrister telling a realtor they create no value and cap @ 25k$ a year.

    If that holds true, lawyers destroy value and should pay back society 150k$ a year.

  127. For example, real estate agents dont create anything of real value to society therefore perhaps we should limit their total income to 25,000 k a year.

    I don’t disagree; I would go back to a meaningful job at VIHA that I once had.

    We could also reduce the environmental impact by prohibiting anyone from living in a housing unit greater than 400 sq. ft for an individual with an extra 100 square feet for each additional family member.

    We already kind of do this….the bigger your house typically the bigger the assessment and the more property tax you pay.

    Much fairer to poor renters.

    Not sure what your point is?

    You see Marko, there will always be a lot of people that think that you have too much

    There are, it’s call the income tax bracket. Justin thought I had too much and he made me pay up. Fair enough, it is what it is.

    All I am saying is someone flipping a multi-million dollar home for a million profit should pay up too, not just the schmuck renting out his basement suite in Oaklands.

    We transfer wealth via income tax brackets why not via real estate.

  128. Dear Marko:

    One can also make social policy arguments that sound good to everyone else. For example, real estate agents dont create anything of real value to society therefore perhaps we should limit their total income to 25,000 k a year. Their fees simply add costs to house transactions. Maybe all house sales should be carried out by a government agency.

    We could also reduce the environmental impact by prohibiting anyone from living in a housing unit greater than 400 sq. ft for an individual with an extra 100 square feet for each additional family member.

    As to the principal residence deductions, why not eliminate it totally and rather than treat it as a capital gain we could just treat it as income. Much fairer to poor renters. Perhaps it should be public policy to basically tax away any profit to a house, after all it is a right to have housing for everybody and we could use the tax money to build housing for people with a lower income.

    You see Marko, there will always be a lot of people that think that you have too much or that want to be able to control what you do. Can you really prove that you need a TV or a barbecue.

  129. Further, the mantra of high density has perhaps been the most successful spin campaign ever created by the developers.

    Having lived four years in a downtown condo and the last 1.5 in a house my biggest take away is the impact on the environment. I am trying to compensate now by driving electric, recycling, and stuff but the condo has a fraction of the carbon footprint. Just think about it…my house is bleeding heat through four exterior walls and an attic/roof. The condo we lived in one one wall of triple pane glass. We left our lot heavily treed but none the less chopped down a bunch of trees to allow for the footprint of the home. Etc.

    Density is an absolute necessity. Well, that is if you can convenience the government that YOY GDP growth is not important and we should limit immigration to nothing and encourage people not to have kids.

    Population growth can only be managed by density or clear cutting or by trying to force people out of Victoria so they populate other cities in Canada and densify there, or clear cut some more?

  130. Marco, that’s only an issue here, where people have benefited disproportionately from housing price increases.
    In places that housing prices have basically stayed the same, there is no massive capital gain anyway

    Historically haven’t most cities seen 2 to 4% per year appreciation? It’s pretty hard to phantom housing prices staying flat for a long time.

  131. Marco, that’s only an issue here, where people have benefited disproportionately from housing price increases.
    In places that housing prices have basically stayed the same, there is no massive capital gain anyway, and so they don’t get “dinged”. I don’t think they’re worrying too much about it, because they want to insure that future capital gains are much lower.

  132. I keep wondering about people tossing out the term “rental crisis”. The assumption seems to be that everybody should have the divine right to live in the core of Victoria.

    Further, the mantra of high density has perhaps been the most successful spin campaign ever created by the developers. If people truly believe that it is a civic duty to live in high density move to Vancouver or Toronto.

    Every study ever seriously done indicates that cities work at their maximum economic efficiency and, ironically, with the highest quality of life when they stay within a range of 200k to 300k.

    I am aware that high density projects are far and away the most profitable for developers partially because all the increased costs of infrastructure are passed on to all the other residents. People keep saying that there is a student housing problem at UVic; simple solution, mandate that the University has one residence room for every student. They have more than adequate land and if they have have to let them build the residences on their football field.

    At the rate things are going Victoria will become just another “American” city within twenty years.
    I am old enough that I will not see it. I am also saddened by the ever increasing “Americanization” of the architecture being built in our city. It is quaint to label it “west coast ” architecture but what it really is California architecture. The very qualities and feel of Victoria, the heritage that makes it so special and unique are rapidly being eroded and transformed into another American set of buildings.

    How does cramming another 100,000 people into Victoria make the city better or more livable.
    What it definitely does do is make a few developers extraordinarily rich. It is late and that is the end of the rant for the day.

  133. Two $50k incomes are taxed less than one $100k income. Is that fair or should it be at a family level?

    Seems quite fair to me overall. A single income family that is making this choice voluntarily and has a high enough income to do so is likely getting the benefit of no childcare costs or work-related expenses for the stay at home spouse. If the spouse is not working because of disability there is an additional credit for this.

    Let’s be real – when people purchased their homes they knew the tax rules.

    Okay, let’ be real – the rules were not clear. You have examples posted here of advice to the contrary given by an accountant, an accountant posting contrary advice given to her by other accountants in her firm and trying to follow up via the KPMG bulletin which was also not clear, and someone calling CRA to try to get answers and not getting any.

    What I notice is people want to always have their deductions at the cost of taking away other peoples deductions.

    Yes. Although in this case the upper end homes are providing a huge unrestricted windfall with the exemption for which I see no logical social policy basis in a system supported by taxation revenues.

    Not sure how a $1 000 000 gain in one year tax exempt on the sale of a primary residence can be seen as reasonable when it impacts affordability overall and is only enjoyed by the 1%? At least with the exemption for sale of a business you have an economic justification via the need to encourage business investment and growth.

    I would expect that the new highlight on capital gains will see more press coverage on this. Will the Trudeau government do something about this? Maybe. I don’t really know.

  134. Agreed with others – most people are not going to weigh the possibility of paying CG’s when deciding to rent out a suite (or buy a place with a suite). There’s a level of comprehension required to understand the issue, plus the ability to base short term decisions on long term consequences.

    Not right now because it doesn’t appear that anyone is paying for it nor is it being enforced? If the government actually started enforcing it wouldn’t take longer than 5 years for everyone to figure it out. You would have people not renting suites, renting suites for below market value to friends for cash, and a bunch of other unfavorable scenarios.

    It would be kind of like building permits. Why does 90% plus of work on homes in Saanich and Victoria get done without permits? Because by now everyone is in the loop and everyone knows that person that tried to do something with a permit and it ended up being a nightmare.

    If the permit processes were a little more realistic people wouldn’t avoid it like the plague.

  135. Someone asked what the premium is for a suited house. I’ve commented on here before that I don’t see much if any premium in Oaklands for having a suite.

    My exact observation. There is a premium for finished vs non-finished basement. Whether it has a kitchen or not doesn’t move the price a whole lot.

  136. Why should people who purchase more than they can afford and need renters to carry the house get a tax advantage as you are suggesting, write off repairs to the house, get income from rent, etc.?

    1/ Income from rent is being paid in form of personal tax at the highest tax rate for that individual.

    2/ Helps with the housing rental crisis. It’s real, I’ve seen it first hand renting out my condos and the suite in my personal house. Some crazy stories on Reddit Victoria too.

    3/ It’s a positive for the environment having two families under one roof and reduces the carbon footprint.

    It’s like why is there a $5,000 government rebate for a $35,000 Nissan Leaf but not a $35,000 Honda Accord? There is a benefit to society as a whole with a Nissan Leaf and I think there is a benefit to society having rental suites, especially at this very particular moment. Just saying doesn’t make sense to punish someone in the Oaklands area with a suite while Mr. Smith is flipping a house in the Uplands for a million profit. The gym, media room, and wine cellar in the basement didn’t exactly contribute anything useful to anyone, but let’s punish someone for housing students or a single parent.

  137. Leo S.

    The Americans have a capital gains cap f about 1 million but they also get to deduct interest payments from their income. Americans can also get mortgages with a 30 year term. What I notice is people want to always have their deductions at the cost of taking away other peoples deductions.

  138. Someone asked what the premium is for a suited house. I’ve commented on here before that I don’t see much if any premium in Oaklands for having a suite. For us we were looking for a finished basement with at least one bedroom (where typically the main floor would have 2 beds). Didn’t care if it was suited. If we could find a finished basement that wasn’t suited (there’s not many), there wouldn’t be any difference in price. A home in the 2600 block of Asquith sold a few months ago that’s a great example. 2 beds up, finished basement not suited, ~780k. Again, if there’s some sort of discount for non-suited houses (at least in Oaklands), I’m not seeing it.

  139. The question of whether a suite is subject to capital gains has been clear as mud to me since I first encountered the issue last year. Even calling CRA and having them explain it got me nowhere. Seems like you could interpret that first criteria in either direction. They basically said “well time will tell if we decide to audit you and charge you tax on it”. Great.

    Has government actually indicated that the rules are changing, or is it that they will now be better positioned to enforce the existing rules?

    Agreed with others – most people are not going to weigh the possibility of paying CG’s when deciding to rent out a suite (or buy a place with a suite). There’s a level of comprehension required to understand the issue, plus the ability to base short term decisions on long term consequences.

  140. @ Marco – “But go after someone who bought a $600,000 home in the Oaklands area in 2014, rented a suite to some desperate students for two years, paid income tax, and sold for $800,000 this year. They don’t deserve the 200k tax free?

    Doesn’t make any sense. If you are willing to have a stranger live in your house you shouldn’t be taxed $1000 on $1,200 worth of rent (reference my calculations below).”

    Wow – do I disagree. And I really love the drama – desperate students. They chose UVic or Camoson and the housing situation in Victoria is well documented. I’ve asked one of my kids to reconsider UBC exactly for the housing issue because he can attend a similar program elsewhere and have decent housing.

    I purchased a house that I could afford, that is not fancy, far less than most people these days are willing to live in for an amount that I could afford without renters. My first ‘house’ was a townhouse. Next was a duplex. Now it’s a detached. I worked my way up. Why should people who purchase more than they can afford and need renters to carry the house get a tax advantage as you are suggesting, write off repairs to the house, get income from rent, etc.? Nope – I don’t agree with your logic at all. Fair is fair – you have an income from a portion of your house, you don’t get the capital gains. I don’t have any income from my house, and, it doesn’t appreciate as quickly because it’s a ‘lesser’ house – and I get the full capital gains as my principal residence.

    Graduated income tax system also doesn’t work well so not a comparable (Tortoro I think said this). Single income families like mine get nailed much harder on taxes than double income families. We have chosen to do without many things for family priorities. Two $50k incomes are taxed less than one $100k income. Is that fair or should it be at a family level?

    Let’s be real – when people purchased their homes they knew the tax rules. Period. When we had kids we knew the single income versus dual income tax rules & risks. Period.

  141. Seems like the logical tweak to make is add a cap to the capital gains exemption just like they have in the US ($250,000 per person). So the person who’s $300,000 condo increased to $400,000 gets the gain tax free, but the person who bought a home in the uplands for $500,000 and sells it for $2.5M gets taxed on $1.75M of the gain.

    As for the rental crisis, maybe the next announcement will be about government supporting rental housing builds like they used to.

  142. In my opinion we have to encourage density including suites long term not clear cutting of everything from Langford to Sooke.

    Definitely.

    Seems myopic to target housing prices (in the name of affordable housing) while making rentals less affordable (by reducing the rental pool). Part of affordable housing is affordable rental availability. I’d argue the most important part as those with the least means must rent their shelter.

  143. I think you are missing the big picture here. This capital gains tax is going after the wrong people and does nothing to help the housing crisis.

    Agreed and I like your example.

    I’m concerned about what it will do to the already tight rental market.

    Maybe people that can afford to not have renters but do have a suite is a small percentage, but it has to be non-zero.

    Most of BC it won’t be a problem, but if we are actually at 0.6 percent as claimed in the news… yikes. A few hundred suites pulled from the market is going to make it worse.

  144. Your average person wants to think as little as possible. Money coming in right now = good. Reading tax code and understanding how it affects you long term and therefor what decisions you should make now? Ha.

    It will be fine for the first 5 years, but when Joe sells and gets hit with a 30-80k tax bill he or she won’t be too keen on buying a subsequent house with a suite or renting a suite after that.

    In my opinion we have to encourage density including suites long term not clear cutting of everything from Langford to Sooke.

  145. Taking into account a potential tax bill 5 years down the road? Forget it.

    This.

    Your average person wants to think as little as possible. Money coming in right now = good. Reading tax code and understanding how it affects you long term and therefor what decisions you should make now? Ha.

    Of course we will see. If houses with suites in core continue to be popular I’d assume that means the average joe that requires the rental income are buying them regardless of the tax situation.

  146. What about the fact that people are getting income – tax free – if they are not declaring their rental income?

    This is 100% illegal. I have zero issues with having to pay income tax on rental income. CRA needs to crack down on people not declaring rental income.

    what about the fact that people are selling a principal residence and benefiting from the capital gains fully, if they are not declaring a portion of their principal residence as a rental unit?

    See my calculations below. Add this to income tax and factor in 3-4% market appreciation there is really no point in renting out a suite.

    Bottom line – this is not honest, nor is it fair. No one has a right, regardless of the rental situation in a city to not declare income or capital gains honestly. The timing is always right for honesty.

    I think you are missing the big picture here. This capital gains tax is going after the wrong people and does nothing to help the housing crisis. What do I mean about the wrong people?

    This is what I see on a daily basis. A house in Oak Bay sold for yesterday $2,700,000 and it was purchased in 2014 for $2,065,000. No suite, no capital gains.

    But go after someone who bought a $600,000 home in the Oaklands area in 2014, rented a suite to some desperate students for two years, paid income tax, and sold for $800,000 this year. They don’t deserve the 200k tax free?

    Doesn’t make any sense. If you are willing to have a stranger live in your house you shouldn’t be taxed $1000 on $1,200 worth of rent (reference my calculations below).

  147. The timing is always right for honesty.

    I’d agree with that. I’d disagree; however, that the capital gains tax exemption is fair as it is currently applied.

    Do the math.

    A foreign investor with a permanent resident child who is a student here who bought a 3 million dollar property in Vancouver without a suite just made 1 million tax exempt in capital gains over the past year if they sold prior to August. Doesn’t matter if they left the home vacant most of the time while vacancy rates are .06%. If they declared it their residence they get the full exemption. Same for the already very wealthy Uplands resident and this has not changed since August.

    Compare this to the family who saved to purchase a $600k home with 10% down and declared and paid income tax on the 25% use suite in the home at their top marginal tax rate and will have to then pay the same on the 25% use $6000 capital gain from the same period. How is that fair overall?

    It certainly does not match up with the graduated income tax system which applies a higher tax to higher income earners in the interests of distributing the tax burden more equitably in society.

  148. @Marko said:
    “I think the timing is super bad. This would be a smarter thing to do if people could actually find a place to rent. More than 90% of purpose built rentals in Victoria are older than 1980 which means in the last 36 years non-purpose built rentals (suites) have had to pick up the slack which as we see now hasn’t worked. Let’s make it so people don’t want to rent out their suites………….in the middle of a housing crisis the government is trying to patch by scapegoating Airbnb.”

    What about the fact that people are getting income – tax free – if they are not declaring their rental income? What about the fact that people are selling a principal residence and benefiting from the capital gains fully, if they are not declaring a portion of their principal residence as a rental unit? Bottom line – this is not honest, nor is it fair. No one has a right, regardless of the rental situation in a city to not declare income or capital gains honestly. The timing is always right for honesty.

  149. Back when I was househunting, you paid about $50k-$100k more for a suite vs unfinished basement, depending on the quality. But even the low height (6’1″), built in the dark ages, truly yuck-inducing suites, were going for more. All I could think was, what kind of tenant would you attract HERE?! How is this a selling feature?? The unfinished basement, we came to discover, is actually really hard to find. Who leaves a basement untouched for 70 years? Not many people. They are either suited OR got “finished” in 1980. Blegh.

    We shocked our realtor by bidding on a house that had a nice main floor, but one of these semi-finished basements. (if you consider semi-finished to mean three walls in one corner of the basement with ceiling tiles nailed to the floor joists and a section of carpet thrown over the concrete). The real shock was that this “area” was listed as a bedroom on mls! They had put a bed against the middle wall and then taken a picture from the opposite end, making it appear as if it was a room. Terrible.

    Over the last 8 years we have put about $50k more into the house, upgrading things slowly, thinking each purchase/improvement through, buying tools and learning thru google and youtube the easier jobs while getting professionals to do those that we couldn’t/shouldn’t. We are at the point where we would have been if we’d gone with the “other house” that sold for $50k more. However this way we started out with a lower mortgage right off the bat. It allowed us to put 20% down and avoid cmhc. And we paid for our improvements without refinancing, because we had no choice. I feel like going with the cheaper home was the smartest thing we ever did. I’m sure we would of had to pay for repairs and improvements at the other house as well, (nothing is perfect), but we would have been harder pressed to make those repairs with our higher mtg pymt.

    Bottom line, buying a cheaper home is NOT the end of the world, if you have vision and can make sacrifices. What sacrifice did we make? How about 1 bathroom for the last 8 years! Lol I’m finally hoping to cross that one off the list this winter! You can’t believe how excited I am to speak with a contractor tomorrow about it. I sure hope our budget is reasonable. Wish me luck!

  150. @Leo S

    I agree that most people dont really figure out all the math behind the rentals. I suspect that most rentals dont have separate utility meters. It is a nibble here and a nibble there and one extra plumbing bill for a clogged up toilet.

    The question in my mind is how much extra does one pay for a house with a suite in it rather than an unfinished basement?

    Of coarse trying to tell anybody about the details usually gets you a very negative reaction since you are raining on their parade.

  151. Speaking of home insurance, I got my renewal this week and it’s now $1518! It was just under $1300 last year. The increase is in the earthquake premium which almost doubled.

    That’s a lot. We paid just under $1000 this year for earthquake + regular on a ~$750k replacement. If it goes much above $1000 I’d seriously consider cancelling earthquake. Chances of a payout in any reasonable time period after the big one is about zero in my view.

  152. More importantly, how many first time buyers really look at all the numbers?

    Probably the vast minority. Most amateur landlords don’t even know how to take into account opportunity cost, maintenance, vacancy, and financing costs currently and will happily accept a negative cash flow situation because they’ve convinced themselves it’s still a good investment.
    Taking into account a potential tax bill 5 years down the road? Forget it.

  153. Barrister – I think my wife would protest.

    I have to admit I haven’t read all the discussion below re: capital gains but for arguments sake, would this be as big an issue if houses only appreciated at about 2%/year (I read this somewhere that this was the historical amount).

  154. Reason first:

    I suspect that there are two basic rules for buying a house in the core:

    1) pick your parents carefully, the Rockefellers would be a good first choice

    2) secondly marry well, one of Bill gates children would do fine (Bill is giving away most of his money but each of the kids is getting 5 Billion in trust).

    I still cannot believe that 611 St Charles sold for 2 mil.

  155. “It’s a lot less after that after you pay income tax. Remember you aren’t being taxed at 22% on your rental income unless you have no job. You are being taxed on it in your highest bracket as it goes on top of your regular income.”

    So renting is now uneconomical so you stop renting and you can’t afford the mortgage any more so you need to sell. Then there are fewer buyers as only those people that can afford to buy without renting will buy. Voila – no capital gains to worry about!!

  156. In terms of the insurance I suspect it is a percentage of the value of your house rather than a flat rate.
    (The more the tenant can burn down, the more expensive it will be).

    By the time you pay a bit extra for a house with a suite, and by the time you pay taxes, insurance and extra repairs, and possibly capital gains, one has to wonder how much you actually make? More importantly, how many first time buyers really look at all the numbers?

  157. Okay just had a read through KPMG’s TaxNewsFlash and it doesn’t really help much…some highlights:

    “Finance Tightens Principal Residence Exemption”
    ….
    “Background:
    A capital gain on selling a home can be reduced or eliminated by the principal residence
    exemption. Generally, families can designate only one property as the family’s principal
    residence for any given year. To qualify as a “principal residence” for a year, certain
    conditions must be satisfied including that the taxpayer, or the taxpayer’s spouse,
    common-law partner (or former spouse or common–law partner) or child, must have
    ordinarily inhabited the residence in the year.

    Generally, the principal residence exemption can be claimed for a year of ownership
    during which the taxpayer was a resident of Canada plus one year (the “one-plus rule”),
    As a result of the one-plus rule, a permanent non-resident of Canada could potentially
    reduce their capital gain on the disposition of property that meets the definition of
    principal residence by claiming the principal residence exemption for the additional one
    year.

    The Income Tax Act requires that a taxpayer designate their property to be their
    principal residence for one or more years in the tax return for the year the property is
    disposed of (using Form T2091). The CRA’s longstanding administrative position,
    however, has been that taxpayers do not need to complete and file Form T2091 with
    their return where the principal residence exemption fully eliminates the capital gain on
    the disposition of the property.”
    ….
    (Talks about how they are eliminating the 1+ rule for dispositions after Oct 2/16 for permanent non-residents and additional eligibility requirements for trusts that designate a property as principal residence.)
    ….
    “Finance also announced that taxpayers will have to report the disposition of a property for which the principal residence exemption is claimed, even if the exemption fully eliminates
    the capital gain. This compliance change applies to tax years ending after October 2, 2016. In the case of individuals, reporting will therefore be required for sales that occur on or after January 1, 2016 on their personal tax returns, starting in 2016. The CRA says that, where taxpayers do not report the sale and do not designate the property as a principal residence on their income tax return, the principal residence exemption will not be allowed.”

    “In addition, Finance announced that:
    • The CRA will be explicitly authorized to accept late-filed principal residence designations
    • Where a disposition is not reported in the taxpayer’s tax return for the year in which the property is disposed of by the taxpayer, the CRA will have the authority to assess that taxpayer beyond the normal assessment limitation period for that year.”

  158. Speaking of home insurance, I got my renewal this week and it’s now $1518! It was just under $1300 last year. The increase is in the earthquake premium which almost doubled. Renters should just keep renting.

    I don’t have earthquake insurance. On my house the insurance company sent out a replacement cost appraiser and it came back at something ridiculous like $1.25 million to rebuild. Earthquake is a 10% deductible. If I suffer $125,000 of damage on my house that means areas like Oak Bay are completely leveled. Questionable if at that point I even survived the earthquake.

    I am at around a $1,000 per year.

    Not sure how much the suite increased it, I know it is in the insurance policy.

  159. A few decades back I rented out my cottage and discovered that the incidental repairs tended to eat up more of the rent than I thought. In the third year I had the tenants from hell who did so much damage that they ate up all three years of rent plus before they disappeared from the face of the earth.

    I got out of the landlord game at that point.

    Frankly, one has to wonder if one is better off not maybe getting a house that has no “little mortgage helper” and maybe just paying less for it.

  160. @barrister

    I’ve seen increases of $250-$350. You need to declare when you are renting a portion of your home to the insure company if you don’t want them to deny you coverage once that tenant burns down your house. Having strangers live in your home increases your risk after all.

    Speaking of home insurance, I got my renewal this week and it’s now $1518! It was just under $1300 last year. The increase is in the earthquake premium which almost doubled. Renters should just keep renting. 😉

  161. Okay but what about that comment that you might not be able to get a mortgage if the house is suited? Now as a seller, your house is harder to afford, not easier. It might be just as much a turn-off as having a buried oil tank. For a buyer, they probably won’t be able to take the rental income into account on their mortgage application?

  162. Marko:

    Actually yif you have a suite in the basement of your house how does this effect your home insurance;
    does anyone know what the increase in premiums would be?

  163. I’m thinking that very few people could lose say $1000-2000 month from their cash flow.

    It’s a lot less after that after you pay income tax. Remember you aren’t being taxed at 22% on your rental income unless you have no job. You are being taxed on it in your highest bracket as it goes on top of your regular income.

  164. It would amount to a huge disincentive to rent out one’s suite, and it might also amount to a huge disincentive to sell one’s property.

    I’ve been going to various things about the housing crisis and one “expert” thought this was a problem in the purpose built rental market. Owners don’t want to sell because of capital gains. This guys idea was if an owner of a 1970s apartment block wants to sell to build a brand new apartment block the capital gains should be deferred since he or she is re-investing into a new rental building. The capital gains would eventually need to be paid upon sale of new rental building.

    Apparently something like this was around in the 1970s but doctor/lawyer professionals were abusing it…..not sure of the details.

  165. Don’t we also need to weigh the benefit of the mortgage interest tax deduction against the liability of a realized capital gain? I know the former doesn’t nearly offset the latter, but it should be included in any hypothetical calculus, no?

  166. @Marko — I just checked my tax return from last year and while you’re right that you don’t disclose the size of the suite specifically, the CRA could gather that info by dividing the personal portion of your claimed expenses by your total expenses.

  167. Marko said:

    “Only individuals desperate for cash flow will need to rent.”

    I’m thinking that very few people could lose say $1000-2000 month from their cash flow.

  168. Anyhow, when I know more, you will know more.

    Thanks, CuriousCat. Please keep us posted.

    Let’s say your home goes to $2,200,000 in 20 years and the suite is 40% of the home there is $480,000 that is now exposed to capital gains. Let’s say you pay 40% tax on $240,000 that is $96,000 or $400 per month over 20 years.

    It would amount to a huge disincentive to rent out one’s suite, and it might also amount to a huge disincentive to sell one’s property.

  169. If they start enforcing this capital gain requirement then it may well track back to when you started renting.

    Doubt they have the resources to do this. On your tax return you don’t disclose the size of the suite. 98 to 99% of suites in Victoria and Saanich have no permits (no joke, that’s an actual number); therefore, sellers would just throw up some BS wall in the basement to cut the suite size from 40% to 20% if the CRA required a professional measurement of the house on sale. How are you going to prove the wall wasn’t there 20 years ago?

    Million other problems.

    I think the timing is super bad. This would be a smarter thing to do if people could actually find a place to rent. More than 90% of purpose built rentals in Victoria are older than 1980 which means in the last 36 years non-purpose built rentals (suites) have had to pick up the slack which as we see now hasn’t worked. Let’s make it so people don’t want to rent out their suites………….in the middle of a housing crisis the government is trying to patch by scapegoating Airbnb.

  170. Marko:

    If they start enforcing this capital gain requirement then it may well track back to when you started renting. I suspect that the Feds never bothered to chase these suites down because they were such a small portion of the housing market. The financial pie got a lot bigger in the last few years and I suspect it is now worthwhile for the feds to start looking at getting capital gains for basement apartments that are in principal residences. Taxes on oil revenue and taxes from Ontario manufacture are way down. I suspect that the Feds are a lot more hungry than before.

    The Feds might not bother in New Brunswick or Nova Scotia since house gains have been pretty marginal. But there is an awful lot of money on the table in the big cities.

  171. Ditto. It would make more sense to co-own a suited home with an ownership agreement if you need additional help to get in the market.

    Let’s not pretend like we don’t know what will happen in reality. A small percentage of people that don’t need the cash flow won’t rent. A large percentage of people that do need the cash flow will rent to friends or similar at below market value for cash.

    When faced with $1,200 per month and $200 net after personal and capital gains tax people will just give it to their friends for $800.

    Amidst the rental housing crisis, it is interesting the Airbnb is being used as a scapegoat while the government makes it less attractive for individuals to have any sort of incentive to rent out space in their house to long term tenants.

  172. So lenders may not give you a mortgage on a home with a suite either?!
    “I see no link to houses with suites being excluded from mortgage insurance. This would preclude every house being built in Victoria from a first time buyer

    To qualify homes need to have mortgages with amortizations of 25 years or less, sell for under $1 million to people with a decent credit score (over 600) and be only “owner-occupied.” Already many brokerages have ceased (yesterday) insuring homes containing suites. — Garth”

  173. @marko.

    Yup.

    Ditto. It would make more sense to co-own a suited home with an ownership agreement if you need additional help to get in the market.

    Never heard of 5% down being only for first time buyers.

    I agree it is open to other buyers for the first $500k of homes which is the price range for first time buyers in higher cost of living markets.

    These ones are not: http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/first-time-home-buyers and http://www.cra-arc.gc.ca/hbtc/

  174. I saw this in the comments section of another blog:

    “I got this e- mail from First National today (i’m a part-time mortgage agent):

    We have had a number of inquiries about the federal government’s announcement on October 3rd about the new mortgage requirements.

    Effective immediately, we have temporarily suspended our Conventional Rental and Stated Income programs.”

  175. If you have a self-contained suite, which is separate from your personal living space, and the suite has a separate private entrance; then you absolutely are required to pay capital gains when you sell the house.

    In summary, if you rent a self-contained suite, then you must declare 100% of the annual rental income on your annual tax return and then when sell the property you must declare the Capital Gains, calculated using the CRA formula

    If this is true than it makes zero sense to actually rent a suite.

    Let’s say you have a $1,000,000 house in the Mount Doug area and the suite rents for $1,200. It is safe to assume because you have a $1,000,000 home that the suite income added to your personal income will be in the 40-48% tax bracket. Throw in a few expenses you need to incur with the suite, etc., after tax you are collecting $600 per month or $7,200 per year.

    Let’s say your home goes to $2,200,000 in 20 years and the suite is 40% of the home there is $480,000 that is now exposed to capital gains. Let’s say you pay 40% tax on $240,000 that is $96,000 or $400 per month over 20 years.

    $600 per month after personal tax minus $400 capital gains tax = $200 per month to rent your suite.

    If the CRA actually starts enforcing this, it will take the nicest suites off the rental market. I certainly won’t rent my suite (brand new house, luxurious two bed suite built to code) for $200 per month. At that point more useful for my out of town family to use it a few weeks a year, media room, gym, etc.

    Only individuals desperate for cash flow will need to rent.

  176. What I don’t like, is that this targets people that have always reported their rental income, as they should, while allowing all those that have been dealing in cash and not reporting their income to avoid this capital gain as well. It’s not fair, but I guess if they’ve been omitting income all this time, what’s one more lie? I can’t wait to see what this form looks like!

  177. Where the hell are people like Totoro getting this mythical “less than 50%” of your house rented means CRA will not collect Capital Gains when the house is sold?

    For the third time, from an accountant. I have a multifamily property and we are not eligible for the capital gain for the rented out portion, and we are retaining RRSP room to cover this eventuality, but my understanding from the accountant is that a separate suite that was not built by the owner and is less than 50% with no CCA claimed was not considered to remove the exemption. This may be incorrect information.

    If you were audited on this point your information and this was the outcome I’d trust your information and I’d be waiting for the bulletin release to confirm.

  178. I’ve been audited on this very point by CRA. The truth is there no such rule that allows you to avoid Capital Gains if you rent less than 50% as a self-contained suite.

    Thanks LeoM! It’s really hard to find real world examples, which I think that’s why so maybe people have this misconception, including accountants! I’ve always been more conservative in my application of the ITA, which is the main reason I declined to put my name on the letterhead. I’m always the one saying, “that’s not gonna fly!”, but clients don’t want to hear that. And if clients don’t like what you have to say, they will go somewhere else until someone agrees with them. And why do accountants agree? Well if its a grey area and not clearly defined in the ITA, then we can always fall back on the fact that we aren’t “auditing” tax returns, we are preparing them based on information YOU provide and we make no opinion. (That’s what all the engagement letters you sign are about, in essence, protecting us.)

    So for me personally, I will give the client my opinion, tell them there is a risk they will lose if they are audited, but truthfully, audits are uncommon. Then the client says yeah ok, I’m willing to take that risk. And there we have it. The 50% myth is born, probably from some random partner having said that to a client or another accountant and someone going, yeah, that sounds good, I haven’t had any clients audited on this, and then they start repeating it, etc. The truth is, CRA has limited staff, and they can only do so many audits a year and they usually focus on the low-hanging fruit, the easy score. Up until this reporting requirement, they had no idea when people sold their homes. This is why I tell people, you might get away with it now, but things ALWAYS change and no guarantee you’ll get away with it tomorrow.

  179. All of them were targeted at first time buyers which represent 50% of sales nationally.
    Having regulation that eases first time buyers getting into the market but doesn’t apply to anyone else will just create bizarre situations where someone can buy their first home but not actually move after that because they don’t qualify under the more stringent repeat buyer rules. Wouldn’t work.

    We already have this situation with the 5% down and rrsp withdrawal program and it works just fine . Once you are in the market and experience the 4% per year appreciation on the entire value and the capital gains tax exemption on this you should be able to move up. That is how many move up. Plus most first time buyer’s salaries will generally increase.

    Let’s take your logic a step further. Almost anyone studying engineering will have a solid job when they graduate. Why are they throwing money away on rent while they study?

    That is not logic, that is a straw man argument. Having income to support the loan on the terms offered and a good credit rating are base requirements. Professional designations, once attained, along with those requirements did and may still affect your mortgage application. Seems reasonable to me.

    first time buyers which represent 50% of sales nationally

    Maybe they have it wrong but the financial post article pegs it at 30%:

    “The first-time home buyer market in Canada represents approximately 30 per cent of the entire housing market,”

    And first time home buyers are entering the very low end of the market on average.

    http://business.financialpost.com/personal-finance/mortgages-real-estate/down-payment-hike-will-only-squeeze-out-more-first-time-home-buyers-a-top-mortgage-insurer-warns

  180. @mike grace: my friend emailed her broker and his reply was, “what new rules?” facepalm
    She told me however that she got approved under the posted rate because she is going with a 2 year term. She said “CWB only deals with shorter term mortgages”. I thought that was interesting.

    The fact that rental properties now have to meet more stringent guidelines should affect the amateur speculators out there that were thinking, hey, maybe I should buy one of those new downtown condos and rent it out or get in the airbnb game! My friend’s cousin bought one last week and heck, if he can be a real estate investor, why can’t I?

  181. “What impact does putting in a second kitchen in the basement have on the tax definition. If you have a separate entrance and a separate kitchen what you seem to have is a duplex under any reading of the act.”

    My understanding is that the second kitchen is not a structural change to the property – it’s no different than putting in a wetbar in the family rec room with a spare fridge and freezer. It’s when you start touching walls. Also, you can get around it easily if the house already had the suite when you purchased it. YOU didn’t make any structural changes. If you undertake a major renovation however, converting your basement or your attic with separate entrances, then renting it out, then you are the one making structural changes.

    The one thing that we accountants agreed on, was that you couldn’t get away with claiming it as ancillary if the suite was not attached to the house. So laneway houses, suites over detached garages, that kinda thing. If it’s separate, it’s taxable.

  182. Where the hell are people like Totoro getting this mythical “less than 50%” of your house rented means CRA will not collect Capital Gains when the house is sold?

    I’ve been audited on this very point by CRA. The truth is there no such rule that allows you to avoid Capital Gains if you rent less than 50% as a self-contained suite.

    BUT, There is a CRA rule that allows you to rent a couple rooms, within your personal living space, to friends, international students, etc without having to eventually pay Capital Gains

    If you have a self-contained suite, which is separate from your personal living space, and the suite has a separate private entrance; then you absolutely are required to pay capital gains when you sell the house.

    In summary, if you rent a self-contained suite, then you must declare 100% of the annual rental income on your annual tax return and then when sell the property you must declare the Capital Gains, calculated using the CRA formula.

  183. Interesting point about duplexes and homes with basement suites. Both can look identical to each other and yet the duplex with two separate legal titles will have a higher combined value and pay more in property and utility taxes than a house with a legal or unauthorized suite. Yet the drain on our city’s infrastructure is the same.

    Historically, I can see the reason for this as the basement suite was seen as a way to help out a few home owners to pay their bills. However today it has become a business model to create wealth. And by doing so has influenced property values and made housing less affordable to a buyer but lucrative to a home owner. And then there is the degradation of our city with the increased demand on our water, sewer system, road infrastructure, road congestion, air quality and parking disputes.

    Victoria isn’t doing anything different than any other North American city. It is following the same path that leads to a city that some of the bloggers have mentioned as a reason why they left other cities in Canada and the USA. Maybe we should re-think what the city has been doing for the past two decades because it hasn’t made housing less expensive and it hasn’t made our city more livable. What it has done is made a few people very wealthy.

    https://youtu.be/gKLwOtpH_MY

  184. @ Curious Cat:

    ” how does this affect a homeowner who is currently building a home? My friend has a construction loan with CW and only put 20% down to purchase the lot. What happens once the loan needs to be converted to a mortgage on occupancy?”

    Hey curious cat – your friend should be ok as long as he/she can meet the new qualifying standards once construction is complete. Financing will still be competitive for owner occupied properties.

    The new regs are removing non-bank lenders from non-owner occupied properties – which now limits the available options for consumers, and competition in the marketplace. Mortgages for rentals, and niche lending programs are about to get a lot more expensive.

    I’d bet we’ll see some major non-bank lenders exit the industry in the next 6 months – especially a few that focus on financing rentals and niche products.

    Genworth said today that up to 50% of it’s current portfolio would no longer be insurable moving forward – not because of the new qualifying standard, but because all low-LTV products need to match the same criteria as high-LTV products. (owner occupied only) That’s a HUGE revenue loss to an insurer, and given the lower risk associated with rental and niche mortgages (lower loan to values, stronger balance sheets of the mortgagor) one has to wonder if the purpose is actually risk reduction, or if the measure is intended to manipulate the lending market in the favour of chartered banks.

    I actually think it’s more possible that the 50% loss of revenue would actually increase the risk of Genworth going belly up in a crash type scenario.

    These changes could have been better thought out and would’ve been fairly positive if limited to simply changing qualification to the benchmark rate. Of course, I’m also a little peeved that my available options for rental mortgages just got slashed – that’s a big part of my business.

  185. Not really. Out of those only the 5% down is a first time buyer program.

    All of them were targeted at first time buyers which represent 50% of sales nationally.
    Having regulation that eases first time buyers getting into the market but doesn’t apply to anyone else will just create bizarre situations where someone can buy their first home but not actually move after that because they don’t qualify under the more stringent repeat buyer rules. Wouldn’t work.

    cap the capital gains tax exemption

    They now have the info to do just that in the future.

    how is it again that changing the rules and delaying their entry into the housing market which has historically been the basis of the greatest source of financial security for families in Canada going to help them?

    Indeed. Let’s take your logic a step further. Almost anyone studying engineering will have a solid job when they graduate. Why are they throwing money away on rent while they study? We know they will have the income to support it, so why not let them buy while they’re students so why not let them just buy a house and defer 80% of the payments until they graduate? Then they too can benefit from all that great house price appreciation.

  186. But I don’t actually think they will change rules drastically.

    Not sure I agree with you….in the last few months there has been so much stuff rolling out that has had absolutely zero thought put into it. The average Joe isn’t even aware of a lot of things either. The HPO owner builder exam, for example, was rolled out July 4th. Most people have no idea but will drive up the cost of building home in BC and provide zero benefit to anyone -> https://www.youtube.com/edit?o=U&video_id=_2TavxSMkFE

    More red tape being added to ton of red tape already in place.

  187. “When the city allowed separate suites to be legally put into single familly houses, have those units not been converted into duplexes.”

    No, they’re not duplexes. They’re not under separate title, which is key. They’re an accessory use to the principle use of detached residential. Different kettle of fish.

  188. Leo:

    You seem very knowledge. When the city allowed separate suites to be legally put into single familly houses, have those units not been converted into duplexes. The tax treatment of duplexes is pretty clear.

  189. Curious Cat:

    What impact does putting in a second kitchen in the basement have on the tax definition. If you have a separate entrance and a separate kitchen what you seem to have is a duplex under any reading of the act.

  190. Totoro:

    I agree with you that getting accurate stas is difficult. Personally I rented a condo here for a number of months before buying so I escaped the out of town purchaser status. But I dont think that is very common.

    The question in terms of impact is actually twofold. Not just how many but how much cash are they coming with when they arrive.

    But you bring up two very valid points. First, we really dont have any accurate tracking of purchasers. Secondly, how many people does it take to push up prices if these buyers have a large amount of cash. Does this have a disproportionate impact on some areas more than others? The fact of the matter is that we dont know.

    I am going to dig around and see if I can find so statistics on the demographic spread in Victoria and Oak Bay. Average prices for SFH in Rockland, Fairfield, James Bay and Oak Bay seem to be hovering around the million dollar mark. I am having trouble believing that local salaries support those sort of prices. But I have often been proven wrong. Totally unscientific but when I am at Thrifties at Fairfield on the weekend I see an awful lot of grey haired people.

    Victoria and Oak Bay had a total of 58 SFH sales last month. The stats from the survey of agents would indicate about 90 buyers a month from out of town, mostly Vancouver. If a third of them are buying in the core then this might account for a very high proportion of the sales.
    I am not saying that they are buying mostly SFH, maybe most of them are buying condos in Langford for all we know.

    Does anyone have any good ideas has to how to nail down the stats in a better way?

  191. But seriously, who in Vancouver is going to rent their suite? Imagine you have a suite close to UBC that is 40% of the house size and the house is worth $5 million. You would have to be pretty dumb to rent it out. If the house goes up $1 million approx. $400,000 is now exposed to capital gains.

    And of course it’s personal use, so you can’t claim a loss when it goes down to $4 million 🙂

    But I don’t actually think they will change rules drastically. Your clients that are renting out the top floor and living in the suite may be in trouble though.

  192. The examples provided in 2.60 doesn’t say, rent out a separate apartment in your home, it says one or more rooms. I GUESS you could argue, but they didn’t say how many rooms, but they could just as easily reply with, we meant a couple spare bedrooms.

    Yes of course it could be interpreted differently and more restrictively – you don’t have the answer and neither do I right now except – as stated – I was repeating the advice given to me by a well-qualified accountant this year. I’m sure her advice, like the advice given by the accountants you work with, will change if CRA’s bulletin states otherwise when released.

    Normally accountants giving tax advice are pretty conservative due to liability. My guess is CRA has not applied a very restrictive approach in the past or this advice would not have been so commonplace to date. That may change. If it does many people will not rent suites, plus the incentive to not report suite income will be much higher for those so inclined.

  193. Frankly, people in Victoria have no idea what the word gridlock actually means.

    Believe it or not more than a few locals have ventured off the rock. Among my cohort most of us have lived in and travelled to other places. While the Colwood crawl may be a minor inconvenience when viewed against the Gardiner Expressway rush hour it is not how I would spend my time given that good alternatives exist here.

    Core prices today are very high partly because you are competing with retiring baby boomers.

    We’ve had this discussion here for years. The stats don’t really show a significant number of out of town buyers and most retirees seem to want to stay close to family and friends, but I’m not sure if the stats are recorded properly and it probably doesn’t take many given the number of sales to maintain higher prices. You could be on to something and you seem like you know quite a few people who are doing this.

  194. @totoro,
    “2.59 It is the CRA’s practice to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:

    a) the income–producing use is ancillary to the main use of the property as a residence;
    b) there is no structural change to the property; and
    c) no CCA is claimed on the property.

    2.60 These conditions can be met, for example, where a taxpayer carries on a business of caring for children in the home, rents one or more rooms in the home, or has an office or other work space in the home which is used in connection with business or employment.”

    The first condition where it states the income-producing use must be ancillary, is questionable and debatable. If CRA wanted to fight you on this, they would probably win. How is a bsmt suite that you cannot afford the home without, actually be considered ancillary and not necessity? How can letting someone occupy half your home be considered ancillary? But say you could argue this point, let’s go on the next.
    The second condition that you do not make a structural change to the property is hard to argue. You add a separate door to access the suite. You add a wall. That’s all it takes.
    The only one anyone seems to think matters is condition three, not claiming CCA. Maybe that’s because CRA had no way of knowing about 1 or 2 beforehand and only 3 was something that they could “flag” you on.

    The examples provided in 2.60 doesn’t say, rent out a separate apartment in your home, it says one or more rooms. I GUESS you could argue, but they didn’t say how many rooms, but they could just as easily reply with, we meant a couple spare bedrooms.

  195. Question: Why would anyone rent out a suite if they are going to have to pay capital gains on it?
    Answer: To pay the mortgage.

    Perhaps Marko and his wealthy dual income professional clients have the luxury of booting their tenants out so that they don’t have to pay some future tax. But there are also plenty of people who got the mortgage they got because the property they purchased had an income generating suite. Those median income folks are going to keep renting out their suite.

    People just like complaining about taxes and government, and so-called tax grabs. Ever complain about the amount of waste in the private sector for, say, re-branding? Most people seem to happily sip on their Starbucks Latte without giving it a thought – but hey, you gotta have someone to kick around. 

  196. CuriousCat:

    Your summary of deemed disposition is extremely accurate. This would be a tax grab worthy of a Medici.

  197. I just had a thought. Back in 1994 when they changed the capital gains rules, they allowed Canadians to make a one-time election with their 1994 taxes to give them a chance to claim the capital gains deductions on their assets. So if someone had bought a cottage for $10k in 1970, they could file the election with the new current value of $100k in 1994, setting the new “cost value”. So when this taxpayer sold the cottage in 2004 for $150k, they only had to claim $50k capital gain, thanks to this election.

    I’m thinking to be fair, they will NOT go back to pre Jan 1 2016 to determine the cost of the house, so any gain, if you sold in 2016 should be minimal, because how else can you prove what the value of your house was on Jan 1, other than by property tax assessments? Only those that bought in 2016 and then sold in 2016 for more, have a true, no way to deny it, gain. Otherwise, what about the poor smuck who bought his house in 1996 and has been renting out a suite all these years? The gain would be devastating.

  198. I guess the accountants won’t have the answers until T4037, Capital Gains 2016 is released. My accountant gave me the answer I posted when I asked this question this year prior to the announcement. If the rules change it will no longer be worth it for many people to rent out a suite.

    First of all, what places depreciated in real terms?

    Check out Cape Breton and New Brunswick.

    Like I said. 30 year, 35 year, 40 year, 10% down, 5% down, 0% down, cash back. Those are all things that were dreamed up by your flawed logic that “we should let qualified first time buyers enter the market sooner”.

    Not really. Out of those only the 5% down is a first time buyer program. That and the RRSP withdrawal not mentioned.

    The rest were available to everyone which probably contributed to the run up but more generous financing terms were available during that long flat seven year no price appreciation in Victoria period we just came out of than were available this year.

    I’d also say the profit motive for lenders encourages pushing as far as you can and when rates are so low it does not always make sense for wealthy people who have other investments to put down more than the minimum required. It is the people who can qualify easily at the higher rates that will be better positioned to buy real estate as an investment if prices come down.

    First time buyers are 30% of the market and 70% of them do not have help from their parents. In Vancouver they are buying homes about 450k on average and about the same here. It is not the first time home buyers that are driving prices up in the core imo, nor most of the programs that have supported them.

    If you really think bringing prices down is the way to go and you want to impact the housing market fairly and directly then cap the capital gains tax exemption. By giving an unlimited exemption to appreciating assets you create tonnes of wealth for the already wealthy like the Chinese students buying homes in Vancouver but also like a lot of core upper end of market residents here in Victoria and you turn housing into a very profitable investment with much better ROI than the stock market. Change that equation and the money will go where the best return is.

    A capped capital gains exemption would give the lower end of the market a good return while creating less incentive for speculation in the higher end market and less of a reason to buy housing for the ROI like you see with the empty house situation in Vancouver.

    I’d also say that if the exemption is now going to be a per square foot limit on personal use only this further penalizes the lower end of the market while allowing the upper end a huge annual windfall at 4% appreciation (or more in Uplands say). Tax the family with the suite on their income and on the capital gain of 20k per year for a $500k house vs. the family with no need of suite income in a 2 million dollar home making 80k in appreciation completely tax free annually.

    With this kind of tax system plus mortgages at low rates and low down payments it is no wonder Chinese families were jumping into the Canadian market. I would too if I were them.

    But back to the first time home buyer, the one in the 70% with no help from parents… how is it again that changing the rules and delaying their entry into the housing market which has historically been the basis of the greatest source of financial security for families in Canada going to help them? Because prices will come down? Maybe it will contribute. Because they’ll have to save more so will have less risk? Maybe. Most likely it is just reinforcing the inequality of opportunity which already had reasonable limits for this segment imo.

  199. From an optics point of view, the politicians will just paint you as one of those exploitive landlords
    who has his tenant pay his mortgage for him and then uses a tax loophole to get away from paying his fair share of taxes.

    I am fine with that painting, but when I boot the tenant because I don’t want to be an exploitive landlord anymore the politician will have the rental housing crisis solved, right?

  200. Marko:

    I suspect that most people would not get rid of tenants; they need the cash flow to pay the mortgage. Many people who no longer need the cash flow tend to get rid of the tenants as soon as possible.
    As a friend of mine said “Rap music at two in the morning really is worth killing for”.

  201. Marko, unfortunately you can’t just stop renting out the suite to try and get away from this. This would fall under the “change of use” provision where you would have to report a deemed disposition. It works when you go from personal to income-producing (so you bought the house in 2010 but didn’t start renting a portion of it out until 2012) and again when it goes from income-producing back to personal.

    Off the top of my head, say you bought for $500k Jan 1 2010 and then Jan 1 2012 you get your first bsmt tenant. Based on your property tax assessment you house is worth $525k. From 2010-2011 you get the full capital gains exemption. $525k becomes your new “acquired price” or “cost”. Then, thanks to this annoucement you figure no way I want to deal with this! You kick out your tenant Dec 31 2016. Your house is worth $625k according to BC assessment. As your are changing use back to personal, you must report a deemed disposition, same as if you had sold it for real. Perhaps they will allow you to defer reporting this until you actually sell (most likely). But the capital gains on this is $100k. As the suite is only 50%, this brings it down to 50k. Hopefully the house is also in your spouse’s name. She claims 25k. Then this is taxed at 50% to arrive at a NET capital gain of $12.5k each, added to your net income to be taxed at whatever your marginal rate is. Now if you had actually sold your home, then I don’t see why you wouldn’t be able to claim the proportional costs of selling to reduce the capital gain. So in this situation that would mean 50% of realtor commissions and legal fees.

    In the deemed disposition scenario, $625k would become your new “cost” and you could claim the capital gains exemption for all subsequent years as long as it remains so. So if you sold in 2020 for $1mil, then you would still only have $100k in capital gains. You’ve effectively frozen your gain.

  202. Marko:

    Actually, in the Uplands you would have been up over a million but I believe beer is banned in the Uplands so you have been limited to drinking only select wines in the backyard.

  203. Thank you Marko for the update. If my friend decides to sell I will pass on your name. He is mulling the idea at this point. Turning seventy makes one reconsider one’s options.

  204. Marko:

    What makes you think that our wonderful government would do a tax grab on suites in the house.
    The other question is whether they would make it retroactive to include all the years of increase in value since you first had a tenant? ie:- if you have been renting for the last five years then they would include the increase in value of those last five years in calculating the capital gain. There is a cetain logic to it; why should I get a capital gains exemption on my house when only 60% of it was my principal residence and the other 40% was actually an income property? I am not saying it is right from a policy point of view but I can see the government justifying its definition.

    From an optics point of view, the politicians will just paint you as one of those exploitive landlords
    who has his tenant pay his mortgage for him and then uses a tax loophole to get away from paying his fair share of taxes. But I am sure that the politicians are too honourable to do this. Now that oil revenues are down they got to tax something and what better than those nasty rich landlords who are exploiting the poor tenants.

  205. Sorry I just dropped that bomb about the suite and then had to leave to attend a retirement dinner. Thanks to whoever it was that posted that link from cra’s website as I was just about to do it.

    This announcement has caught even us accountants by surprise. (They don’t give us any advance warning before making finance announcements either.) The partner that was retiring said to me, when I asked his thoughts, first said he had stopped checking the news so had no clue, first of all, and then second of all, stated that he believed CRA’s administrative policy was that if the suite occupied less than 50% of the home it was considered “incidental”. I respectfully tried to point out that 50% is not really incidental, that it’s more likely to be meant that if you rent a bedroom to a student and share your personal space. Then our food came so the discussion was dropped, but what does he care, he’s retired now.

    As for the other partner, as I gave him a ride to his car I brought it up with him. He at least had heard something about it, but he told me he would wait until KPMG releases their report to analyze it. He whined a bit about the extra work this would mean for us and we speculated on whether it would be like the foreign assets over $100k reporting requirements, as the penalties are exactly the same.

    Anyhow, when I know more, you will know more. But in the meantime, I advised my friend the safe bet would be to plan on buying RRSPs to offset the potential cap gain (she sold in Feb and did record her rental income.) I calculated what that amount would be, if it comes to that. To be continued…

  206. 611 St Charles, in Rockland, which was listed for 2.2 has just sold; do you know the selling price?

    Sold for $2,050,000. It was purchased in 2009 for $1,375,000.

  207. I believe that Marko made a very smart move in his choice of area to buy into at this point.

    Financially not really. Instead of buying my 1/2 acre lot on the Peninsula in 2013 and taking a year to build a house which was a ton of work I would have been much better off to buy something that was falling apart around the $800,000-$1,000,000 in the Uplands. I would have had just to mow the lawn and drink beer in the backyard and I would be up over $500,000 by now, tax free.

    I have no regrets. Really enjoy being a few minute drive to Saanichton and going into the Thrifties there at 9:30 pm and being one of two or three people in the store. Can’t handle the Langford crowds. However, financially can’t compare to to the appreciation in the prime core areas. I lost out on that.

    Yes, I am still amazed at how easy the commute is from Saanichton into town.

  208. Marko:

    611 St Charles, in Rockland, which was listed for 2.2 has just sold; do you know the selling price? My neighbour across the street is thinking of selling and was wondering what they got for it.

  209. Bingo:

    It sounds like your ability to move up in the core or to easily move up into the Peninsula results to a large degree because you bite the bullet and bought into the core seven years ago.I suspect that your house has appreciated faster than you could have possibly saved.

    I have yet to see any serious traffic jams along the Peninsula but I have lived in both Toronto and LA.
    Frankly, people in Victoria have no idea what the word gridlock actually means. Core prices today are very high partly because you are competing with retiring baby boomers. I believe that Marko made a very smart move in his choice of area to buy into at this point.

  210. T4037 for 2016 does not seem to be released yet. Whether the 50% rule still applies is anyone’s guess, however if nothing had changed in the rules, why wouldn’t they just say that?

    I agree with you, if nothing was changing they would have said something. If this is going to be what I think it is (size of suite proportional to house will be capital gains) my tenants are unfortunately going to be out of a place to live. I already pay income tax on the revenue, throw in capital gains proportional to the size of the suite and screw it. At that point I rather have a gym and media room instead of tenants. No inconvenience of having tenants, no stress about having to pay capital gains down the road, more space. Really a win, win, win situation.

    But seriously, who in Vancouver is going to rent their suite? Imagine you have a suite close to UBC that is 40% of the house size and the house is worth $5 million. You would have to be pretty dumb to rent it out. If the house goes up $1 million approx. $400,000 is now exposed to capital gains.

  211. I am far from a tax expert but I vaguely recall that an independent suite in a house is treated the same way as owning a duplex and you are only living in one half of it. I am unsure of that so it would be nice if any accountant who actually knows can clarify if a basement suite is excluded from the principal residence portion of the capital gains exemption.Certainly income from the rental has to be claimed/

  212. To Penguin:

    I completely support your position in so far as owning a house is not everyone’s priority. You are right that houses are expensive but they always have been expensive.

    You seem to have rationally decided your priorities and weighed the alternatives objectively. I believe that you have accepted that house prices in any area you want to live in are appreciating faster than you are saving but it is not an irrational set of priories that you are setting out for yourself.

    I am a little confused when you mention student loan payments but in the same breathe you have money for trips and holidays and new cars and phones. But I assume that you are speaking in general and not of yourself. While there are drawbacks to renting, there are many people that feel that one is actually ahead by renting rather than ever buying a house.

    I am curious as to whether you have actually looked at the amount you will need to retire comfortably
    with at age 65? Most people find the amount rather shocking.

  213. @Penguin

    I don’t blame you. We bought in core 7 years ago as young dink professionals (no longer dinks and not as young). With our wages then would I buy in core in this market? No way. Even adjusted for inflation. I don’t think we’d buy into this market with our current wages either. Hard to say though. We were pretty dead set on a SFH before having a kid and not living in Langford.

    Moving up isn’t out of the question though. Doable within core, and lots of options if we moved out of core (plus less risk of bidding wars on a place we’d want). Maybe we’ll move out near Marko. Apparently the commute isn’t all that bad. Do they even have $5 coffee that far out the Peninsula, or is it all ensure and prune juice?

    So if we lose all the new buyers, can the trade-up and trade-down buyers keep this market alive?

  214. Instructions will be provided in the guide T4037, Capital Gains 2016, on how to report the sale of your principal residence in this situation.”

    T4037 for 2016 does not seem to be released yet. Whether the 50% rule still applies is anyone’s guess, however if nothing had changed in the rules, why wouldn’t they just say that?

    Interesting. I guess we’ll have to see what happens.

    Thankfully I don’t plan on selling my home anytime in the next 15 years. And perhaps the rules will change yet again under a future government.

  215. No, it is not just access to financing that causes price acceleration although it is contributing factor. A far bigger influence seems to be desirability – or the reason Victoria has appreciated faster than Duncan.

    A long time ago I had a bit of a heated exchange on this matter with either Leo S or HHV — I can’t remember which. I kept asking why Victoria’s prices went bonkers while Halifax’s, Kitchener’s, and Saskatoon’s didn’t, being that cheap credit was (is) available nationwide. Do you recall this, Leo?

    I can’t quite remember how the discussion concluded, but I remember whoever it was was very reluctant to acknowledge that Victoria possessed any relative inherent desirability.

  216. I am in a 2 income professional family (we are under 32) and I think houses are expensive. I occasionally drink 5 dollar coffees and occasionally go on fancy european trips and bought a new car in the last 5 years. We dont own a house but we save/invest and could buy one if we wanted…but why would we in this market.
    First of all I cant stand when people bash the younger generation for their 5 dollar coffees and smartphones. Do you really think 15 bucks a week on coffees is why they cant buy a house? Give me a break. And I personally dont always buy the newest smartphone but is the 300 dollars a year on a new phone every 2-3 years the reason either? NO.
    Maybe it is because houses are more expensive than renting and investing (my situation) or it takes a long time to pay off student loans and there arent many of those high paying jobs around. It takes us longer to get ahead and when you are in that situation you feel you should just enjoy your life as it is and enjoy nice food, trips etc. Who cares if it takes you longer to get a house? Is that really everyones goal in life? I am not saying everyone is great with their money but as long as you budget and are saving why not enjoy the good things in life?

    I think these new rules are great. If you cant afford the higher rate then you shouldnt be getting into the mortgate. I think it will put less people at risk and how could that be a bad thing?

    Also there is no way I would move to langford just so I could buy a house. To each their own…

  217. Thanks, totoro. The information you provided is extremely helpful.

    Except that info is regarding the old rules. Here is where they talk about the new rules: http://www.cra-arc.gc.ca/gncy/bdgt/2016/qa11-eng.html

    What do I report when I actually sell my principal residence, if I used part of it as my principal residence and another part for my business or to earn rental income?
    If only a part of your home qualifies as your principal residence and you used the other part to earn or produce income, you may have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business). You can do this by using square metres or the number of rooms, as long as the split is reasonable.

    Instructions will be provided in the guide T4037, Capital Gains 2016, on how to report the sale of your principal residence in this situation.”

    T4037 for 2016 does not seem to be released yet. Whether the 50% rule still applies is anyone’s guess, however if nothing had changed in the rules, why wouldn’t they just say that?

  218. Thanks, totoro. The information you provided is extremely helpful. I will have to double-check with my accountant, but it sounds to me like I won’t be dinged with capital gains when I sell my house even though I rent out the basement portion.

  219. Pretty simplistic explanation given that everywhere in Canada had access to this type of borrowing yet a lot of places have depreciated in real terms.

    First of all, what places depreciated in real terms?
    Obviously when you loosen credit you increase the positive pressure on prices. The same income now buys you more house. Doesn’t mean prices necessarily go up, of course a stronger factor could overpower that, but the positive pressure is there.

    You are looking at the issue as if you were the only buyer when in fact this affects everyone equally. You said you would have had to wait an extra 3 years. Well so would everyone else earning normal incomes, which means by definition those buyers are not in the market and not pushing up demand.

    Like I said. 30 year, 35 year, 40 year, 10% down, 5% down, 0% down, cash back. Those are all things that were dreamed up by your flawed logic that “we should let qualified first time buyers enter the market sooner”.
    In 2008 the government realized what kind of insane treadmill of ever increasing prices that leads to and they started restricting credit. Now they have doubled down on that.

  220. FWIW imo if you are going to have a capital gain it is ideal if you have unused RRSP contribution room and use the funds from the gain to contribute and offset the tax payable. We’ve saved some of our RRSP room for this purpose given that the highest marginal rate will be quite high.

  221. 2.59 It is the CRA’s practice to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:

    a) the income–producing use is ancillary to the main use of the property as a residence;
    b) there is no structural change to the property; and
    c) no CCA is claimed on the property.

    2.60 These conditions can be met, for example, where a taxpayer carries on a business of caring for children in the home, rents one or more rooms in the home, or has an office or other work space in the home which is used in connection with business or employment. In these and similar cases, the taxpayer reports the income and may claim the expenses (other than CCA) pertaining to the portion of the property used for income–producing purposes. In the event that the taxpayer commences to claim CCA on the portion of the property used for producing income, the deemed disposition rule is applied as of the time at which the income–producing use commenced.

    http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html#N107A2

  222. My understanding is that if you did not build the suite, you do not claim capital cost allowance and it is not the primary use of the residence ie. less than 50% the entire primary residence remains exempt. I don’t find this a game changer myself – same rules as before as far as I can tell unless they are amending the Income Tax Act.

    Capital gains are payable on 50% of the gain at your highest marginal tax rate.

    Our dog cost us more than 2k a year as we made all her food, she needed grooming, and we paid for pet insurance which, in the end, we received $1000 back for the $10,000 paid out. She was worth every penny to us although saving the money separately and paying out of pocket for vet care would have been cheaper. Once you have your basic cost of living covered my view is that the right question is will this spending decision bring the right amount of joy. Things that fall into this category for me are kids and family and then a pet.

    It appreciated by $80k because of loose credit policies that allowed everyone to pile into the market. If the regulations would have been in place back then the place wouldn’t have appreciated as much.

    Pretty simplistic explanation given that everywhere in Canada had access to this type of borrowing yet a lot of places have depreciated in real terms. Plus the long history of Victoria appreciating 4% per year on average. Plus that long flat seven-year tea time we had in prices here despite low cost financing – or did you forget?

    No, it is not just access to financing that causes price acceleration although it is contributing factor. A far bigger influence seems to be desirability – or the reason Victoria has appreciated faster than Duncan. And maybe even bigger is the rolling ball of consumer confidence… perhaps fueled by crazy amounts of foreign money invested in Vancouver and Toronto – which is more of an issue than assisting first time buyers imo.

  223. I can’t find mention of having to pay capital gains on the suite portion of a principal residence at the CRA website location indicated by CuriousCat. Can anyone provide additional direction to this information?

    I, too, would like to understand this better.

    What is the capital gains exemption? What is the actual capital gains tax rate? And how is it applied to people renting out a portion of their principal residence?

  224. I can’t find mention of having to pay capital gains on the suite portion of a principal residence at the CRA website location indicated by CuriousCat. Can anyone provide additional direction to this information?

  225. My dog probably costs me about $2K per year.

    -I don’t buy cheap food, but also not the most expensive, so that’s about $1200.
    -At least one schedule vet bill per year, $150.
    -Flea/deworming meds, $300/year (iirc).
    -Toys, not sure but the dog goes through them. $50-100/year
    -treats, poop bags, new leashes/collars etc. $50/year

    So, $1750-1800 estimated with no surprise vet visits. I usually have one extra visit due to an ear infection or something picked up at the lake, so another $150 + meds. $2K sounds totally normal for a medium dog.

    I always laugh when people complain about the price dogs. The initial price to buy a dog is such a small % of the total cost of a dog. If you think you can afford $300 for a dog, but not $1200 you can’t afford a dog (or whatever the numbers may be, $100 vs $2000 even). If the initial outlay is potentially a stretch, you can’t afford a dog. Don’t buy a dog.

    From personal experience those younger individuals buying in the core are typically 2x professionals that have large salaries.

    Care to quantify “large salaries”? I’d figure 160K-ish is pretty normal for two people with degrees in Victoria (only 80K each). 200K+ would surprise me for late 20s early 30s.

  226. Also seems like it would be hard to enforce. What happens when you own for 10 years and rented out the suite for 8 but not in the year of sale?

    It’s not just difficult to enforce but leads to a lot of other problems. It would decrease availability of rental stock in the middle of a rental stock crisis. A greater percentage of individuals will take cash from their tenants and not report the income secondary to fear of this capital gains tax. Depending on the details it will make short term rentals more attractive. Airbnb your suite for two months during the summer to make some cash and leave it vacant the rest of the year…………….etc.

  227. Ok WAG time.

    Will the new regulations, over the next year, drop the price of your average starter home?

    Doubt it. Although it might stagnate from here.

    How will it effect the rest of the housing market?

    Increased inventory will restore some balance to the market.

    Will it have any real impact on the luxury market?

    Vancouver giving up the last few years of gains will return the spillover of “cash out” buyers to normal levels which will moderate / correct that segment.

  228. Depending on the details of this I would seriously consider not renting the suite in my personal house.

    Also seems like it would be hard to enforce. What happens when you own for 10 years and rented out the suite for 8 but not in the year of sale?

  229. I think Toronto and Vancouver are fucked. Victoria does not seem to operate like any other market so god knows about here. When the government get involved things usually do not end pretty. I am sure anyone with a mortgage will pay a higher rate now. That discount to prime I am sure will keep going down. End of the day the only group that will do well is the banks.

  230. If you have a suite in your home, then sell it, the selling price
    must be split and reported. Part of it will qualify to the tax exemption and
    part will not.

    How is this going to improve the housing crisis in cities like Vancouver? The price appreciation in some of these cities can be so huge that if this was applied in proportion to the size of the suite it wouldn’t make sense to rent the suite out. Depending on when you buy and the market appreciation you could have a net loss renting a suite if you have to pay capital gains. Just have a media room with a bar.

    Depending on the details of this I would seriously consider not renting the suite in my personal house as I don’t need the cashflow on a monthly basis and wouldn’t want to get hit on the sale with taxes exceeding what I’ve collected in rent.

  231. Your Opinion:

    Will the new regulations, over the next year, drop the price of your average starter home?

    How will it effect the rest of the housing market?

    Will it have any real impact on the luxury market?

    Thanks for taking the time.

  232. If you have a suite in your home, then sell it, the selling price must be split and reported. Part of it will qualify to the tax exemption and part will not.

    This could be significant as you say. But likely too complicated for the average amateur investor to take into consideration. Planning ahead for partial loss of capital gains exemption is way beyond the average landlord. They will just be surprised and eat the loss at the end or have to get rid of the suite long before.

  233. Dear Hawk:

    Sorry, I am a bit confused here. When you talk about a ball and chain are you referring to a house or to marriage?

    First, I totally agree with you that buying a house is not the best choice for many people. What bothers me is the I desire it all mentality of some people. By all means get a dog but know what you are getting into before hand and then make a decision. Sounds simple but more rare than one would think.

    Actually, the same thing sorta applies to marriage only more so.

  234. Barrister, I was assuming Marko meant everyone had $2000 costs to buy,not over time. Pets are naturally expensive over time especially if they get sick. Get pet insurance. All sorts of hobbies are expensive too, cars, boats, collecting things etc. It’s called life. Many choose a fun fulfilling life over a ball and chain.

  235. Wow this could be devestating. Get out the little red arrows,this sucker is done.

    “Genworth on new rules: 50 to 55% of its total portfolio new insurance written would no longer be eligible for mortgage insurance. @BNN”

  236. Dear Curious Cat:

    You should have bought a German Shepherd; the staff at the Penny Farthing assure me they make the best shepherd’s pie.

    On a serious note, you are right. How many people before they buy a dog even google the average annual cost of a dog? While they are at it, before they get married they should google the cost of getting a divorce as well.It is not how most people operate.

  237. Had these restrictions been in place when we first bought we would have had to work about three more years before having enough down by my calculations – maybe more. In that period of time our house appreciated more than $80k

    It appreciated by $80k because of loose credit policies that allowed everyone to pile into the market. If the regulations would have been in place back then the place wouldn’t have appreciated as much.

    There should be an exception for first time buyers with good credit and good jobs to help them get in the market

    Sure. And we should allow 40 year amortizations for people with good credit.
    That kind of reasoning is exactly why we are in this mess and now they need to backpedal.

  238. @Marko

    the buyers (late 20s) moved into the one-bedroom suite and rented out the three bedroom upstairs for $1,800/month.

    Smart. Getting into a SFH in the core will require creativity in the future, correction or not.

    I am more sympathetic towards the I have three or four kids argument

    I’m not. Kids are a choice just like dogs and they get used to justify a heck of a lot more spending.

    @Hawk

    You take away the low end of the food chain and the next level can’t move up.

    Exactly. First time buyers are pure demand, just like foreign buyers. These and previous regulations attacked both of them, so this will have more of an effect on the market than the percentages would indicate.

    @RenterRabbit

    My housing budget just dropped 25% overnight, which is pretty disheartening.

    That sucks. The government’s screwup is not the regulations, it’s not having them in place ages ago before the loose credit drove up house prices.

  239. @ Caveat Emptor;

    I generally found that most people have a difficult time with finances principally because they have trouble delaying gratification. The vacation today always is a higher priority than a paid off house ten years from now. not everybody but most people.

  240. I have a small dog. He cost me $600 to purchase. His food costs me $55 every 2 months (he’s only 15 lbs but I buy the good stuff.) His deworming and flea control costs me $300 annually. His annual vet visits including shots cost $150. Having him neutered cost $550. Getting him groomed costs me $60 every 3 mths. And earlier this year he needed dental work because he won’t let me brush his teeth, and that cost $1000 (including anesthesia, xrays, and 1 tooth extraction).

    Dogs are not cheap.

  241. I find that number to be a little low over the lifetime? I have friends spending upwards of $1,000-$2,000 a year factoring in unexpected vet bills.

    Non-rich friends of mine have spent more than 2000 on single vet bills. Buying a dog if you are allegedly saving for a house seems financially self destructive. Unlike having kids where the clock will run out you can buy a dog whenever.

  242. @Mike – how does this affect a homeowner who is currently building a home? My friend has a construction loan with CW and only put 20% down to purchase the lot. What happens once the loan needs to be converted to a mortgage on occupancy?

  243. Justrenter:

    Actually you are right in that first time buyers get a lot more help that people trying to move up to their second home. Ironically all these basement apartments have mostly just pushed up the price of a SFH.
    In order to afford a small house you are now obliged to listen to someone elses stero playing stairway to heaven for half the night.

  244. So how does this affect Victoria sellers? Guess what, you have to pay capital gains on that musty basement suite. This was ALWAYS a requirement, it was simply that no one ever did because nobody reported the sale of their homes. But now that there will be a form, they got you.

    Combine that with what Mike said about rental income not adding as much to the qualifying mortgage, and all the headaches of tenants, this should make suited homes a lot less desirable to buyers.

  245. Why is everybody feeling bad for the first time buyers? Why not about sellers? At least just a hypothesis for the future, maybe??

  246. I checked a website as to the annual cost of caring for a dog in Canada. The website put it at 2,600 per year; this does not include the cost of purchasing the dog. I am just passing on what i read so dont beat me up on it. I take no responsibility for either the accuracy or the sanity of that number.

  247. One thing that the media hasn’t caught on to yet, is the new requirement for claiming the principal residence exemption:

    Taxpayers must report the sale of the family home if you’re claiming
    an exemption from capital gains tax (in the past that exemption was
    automatic). ‘Basic information’ about the property will be required on the
    tax form – yet to be determined. If you don’t comply, no exemption.
    The CRA will have authority at assess you for capital gains tax on
    real estate that is not reported on the tax return for the year in which it
    is sold.
    Ottawa will work with provincial governments (which maintain land
    registry operations) to ensure that all residential real estate transactions
    are recorded and taxed as required.
    The tax return, starting next April, will require details on the
    date a property was acquired, the proceeds of disposition and a description
    of the property. To qualify for a capital gains tax exemption, you must
    complete and file a separate Schedule. The full exemption may not be
    granted, depending on the details provided.
    If you sell your home but forget to include this information on your
    return, CRA will not allow the proceeds to be tax-free. In that case you
    must ask CRA to amend the return. This amendment will be granted “in
    certain circumstances” but may also come with a penalty equal to the lesser
    of $8,000 or $100 per month from the sale date to the request date.
    If you have a suite in your home, then sell it, the selling price
    must be split and reported. Part of it will qualify to the tax exemption and
    part will not.
    Starting with the 2016 tax year, individuals who sell their
    principal residence will have to report the sale on Schedule 3, Capital
    Gains of the T1 Income Tax and Benefit Return. Reporting will be required
    for sales that occur on or after January 1, 2016.
    An individual who was not a resident in Canada in the year the
    individual acquired a residence will not be able to claim the exemption for
    that year. Canadians who were legitimate residents at both the time of
    purchase and time of sale will still be able to take advantage of the principal residence tax exemption.
    <http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns1
    01-170/127/rsdnc/menu-eng.html>

  248. Any estimates of how many buyers in the core were move-up buyers such as those professionals we are talking about. We’re they in a 1st time home buyers type place before?

  249. In my experience the bulk of the 30-something professional couples with kids who bought houses in the core in the last 5 years did so:

    Before the run-up late last year
    With at least some help from parents
    With a potential family income of more like $150-$200k than $120k
    While struggle(ing) with finances while having preschool aged children due to one parent working half time or irregularly, or incurring high childcare expenses
    While owning one car (or no car)
    With the knowledge that at least one set of parents is wealthy
    With eyes wide open

    Not many people I know have the fancy boat or whatever.

  250. But a dog over its lifetime will probably cost you upwards of 2000 (not including shoes, china and furniture that it destroys along the way.)

    I find that number to be a little low over the lifetime? I have friends spending upwards of $1,000-$2,000 a year factoring in unexpected vet bills.

  251. My idea was that Marko wants to portray like everything is so easy for the locals, just two professionals and all that theory….I work in the IT sector (PhD) and I have one of the biggest salaries there (top 10 %) but I don’t think that situation is very common,

    My mom works in housekeeping at Uvic….I don’t live in a bubble where my family and friends are all millionaires; I know how much the average person makes. The dual working professional income is not common on average in society, but it is common for those 1st time buyers buying a house in the core. The remaining 90% have no hope or need to resort to the Westhills. That’s is just reality, I am not saying it is easy.

  252. Dear Hawk:

    Actually, I dont know what the average cost of owning a dog is these days but by the time you throw in food, dog implements and vet bills it can get pricey. Generally, if you are renting you are going to end up paying a bit of a premium to find a place that takes dogs. But a dog over its lifetime will probably cost you upwards of 2000 (not including shoes, china and furniture that it destroys along the way.)

    By the way I had both dogs and horses but I also waited until after my mortgage was paid off. I have also never owned a new car in my life. People make choices but what I find troubling is that a lot of people dont understand the consequences of their choices (actually they often do understand but they dont want to deal with them).

  253. Garth summed it quite nicely. The creators of this disaster our now the destroyers. No need to rush to do the deal as the lenders are shutting it down early. Greater fools indeed.

    “Other predictions making the rounds: the availability of mortgage financing will start to diminish almost immediately in Toronto and Vancouver. While buyers rush to meet the October 17th deadline, many lenders will stop doing deals within a few days. Mortgages with longer amortizations will start costing more – maybe a lot more. That’s a big deal since this is a huge chunk of the business these days. And there’s more speculation the Bank of Canada will cut its key rates since two of the nation’s biggest economic pillars – oil and houses – are seriously under pressure. After having allowed the bubble to inflate so wildly that up to 25% of the nation’s GDP is real estate-related, the ride back down could be painful.

    Well, there you go. The catalysts required to pierce an inflated, bilious, dangerous Hindenbubble have been delivered by government. First BC, then the feds and soon (I hear) Ontario. Interest rates did not have to rise. The jobless rate did not have to swell further. The economy did not have to contract into negative growth. All it took were politicians reacting to a situation which government itself created. By offering ultra-cheap money and endless buying incentives to a population devoid of self-discipline, the inevitable occurred. We find ourselves over-housed, over-indebted and naked to risk.

    “This market is now toast – too many changes at once,” a Vancouver insider told me hours ago. “Just get the popcorn and watch.”

    http://www.greaterfool.ca/

  254. Maybe this is faulty thinking, but my view is that as more buyers, either by desire or financial necessity, buy in the West Shore, the more the traffic into and out of town will bottleneck. The more the traffic bottlenecks, the more desperate many West Shore residents will be to someday relocate to the core.

    The core is desirable for reasons other than its relative lack of traffic congestion. But as long as the Colwood Crawl exists (and possibly worsens), the core will remain ultra desirable.

    As many have pointed out, the new McKenzie interchange is not likely to solve the congestion problem, but merely shift it elsewhere.

  255. My idea was that Marko wants to portray like everything is so easy for the locals, just two professionals and all that theory….I work in the IT sector (PhD) and I have one of the biggest salaries there (top 10 %) but I don’t think that situation is very common, the average Canadian thinks that is a dream salary when they hear about it. And we are very disciplined, immigrant like you Marko, and don’t really need any mortgage at all for an average house. These non ending stories of reach people and easy money when Canadians have the highest debt levels need to be questioned I think.

  256. “I am more sympathetic towards the I have three or four kids argument as the odds are one of your kids might be operating on me in my old age.”

    I’m least sympathetic towards that. If you pump out 3 or 4 kids you best have your shit together financially before hand. First one is a freebie, after that it’s your own doing. BTW not every dog costs $2000, lets get serious.

  257. Not a very good time to be a first time buyer is it. Those new lending restrictions will really impact them.

    I say keep the lending restrictions for the rest of the folks who should not need the assistance in qualifying if they have enough equity to bridge the gap from a first home. And do more to further restrict mortgages to non-residents overall and the level of risk allocated for second home owners mortgages instead. Requiring 20% down for a rental property and a higher qualification rate seems reasonable to me – they should not be backstopped by CMHC.

    Had these restrictions been in place when we first bought we would have had to work about three more years before having enough down by my calculations – maybe more. In that period of time our house appreciated more than $80k and we paid down 20k in equity and we knew the landlord couldn’t kick us and the kids out.

    That would have put us another $100k behind the next door neighbour who bought in earlier because s/he had rich parents. If you don’t have parents to help – which we didn’t and we know many others do not either – then you are going to have a hard time now entering the market which seems quite unfair given the otherwise low risk of default.

    There should be an exception for first time buyers with good credit and good jobs to help them get in the market. The issue of risk is one that I would have hated to have managed for us by oddly applied government intervention. I knew and fully understood what we were taking on. If you are worried others don’t require mandatory education prior to entering the first time buyer program.

  258. Totally as a matter of trivia (and I have no interest whatsoever in this) I went through an open house on Maude St. in Rockland and I have to confess that I was actually impressed with the high quality of the renovation. Most of the renos I have seen are poorly done by blind carpenters using material bought from the Home Depot sale pile. (In fairness I am excluding a few homes that I have seen but they were in the three million dollar range). I believe that Maude is asking a million three which is still a lot but at least you are getting quality for your money.

    I wonder what it will sell for.

  259. It does sound like Marko has an anti-dog problem. Comes up all the time. Bad experience maybe?

    Not anti-dogs but I did grow up under different circumstances in Croatia where my grandfather had a dog on the farm to heard the sheep, so the bag accessory dog is something a little odd for me. It isn’t about the dog itself (I actually like dogs as animals and always enjoyed being on my family farm), it is the argument of “I need a yard because I have a pet dog (medical dogs excluded) and single family homes are not affordable” is what really annoys me.

    I am more sympathetic towards the I have three or four kids argument as the odds are one of your kids might be operating on me in my old age.

  260. You take away the low end of the food chain and the next level can’t move up. I expect to see inventory increase and price reductions increase as the fence sitters/ landlords and flippers all start to panic that the party is truly over.

  261. @Marco:

    I cant believe that i am rushing to the defence of a real estate agent but frankly I dont think the criticism leveled against you is either fair or correct. You are absolutely right that usually it is two young professional (or one young plumber) that can afford to carry that sort of mortgage. I think the advise that you are giving is both responsible and reasonable.

    There is an old saying amongst lawyers that might apply to you Marko. ” If you really feel compelled to speak the truth be prepared to leave the country.”

  262. This only confirms what my buddy was told from the credit counsellor friend who said 70% of Victoria is living on the edge of going under. He sees the massive debt problem all day long and confirms all the polls lately of people one check from biting the dust. Not every professional manages their money properly. The new rules will be the final push and long overdue.

    It does sound like Marko has an anti-dog problem. Comes up all the time. Bad experience maybe?

  263. The young couples are still hunting for their 1st home are:
    a) no compromise. Want/Need location & land size & newer house
    b) the universe is against them.
    They keep saying the houses are too expensive while drinking $5 coffee, playing on the newest cellphones, shopping for another must-have new toys, FB in fancy restaurants.

    I don’t think people want to hear this…..but at least I didn’t say it 🙂

  264. c) become slumlords, or even live in their own basements.

    This year was the first time I came across this. I sold a house in the Hillside area and the buyers (late 20s) moved into the one-bedroom suite and rented out the three bedroom upstairs for $1,800/month.

  265. Thank you Mike Grace. This is what people need to hear, not those same stories that Marko and others love to tell how two professionals with big salaries etc. etc. are constantly keeping the market hot. Yes, with debt Marko, with a lot of debt! Not doing a good job when young’s financial illiterate is very low. Yes, you think you have done your job telling us about cats and dogs and vacations so people have to follow only what you have to sell- real estate. Please show some professionalism.

    I am simply stating the obvious. If you want to buy a $800,000-$900,000 home in the core with 20% down (or less), you need a huge income to qualify which is typically derived from two working professionals.

    Not sure what to make of your other comments? You claim debt is a problem but I am unprofessional for pointing out the costs people incur with pets, vacations, cars, etc. It’s all the things I point out that contribute to debt.

  266. @sam

    “Thank you Mike Grace. This is what people need to hear, not those same stories that Marko and others love to tell how two professionals with big salaries etc. etc. are constantly keeping the market hot. Yes, with debt Marko, with a lot of debt! Not doing a good job when young’s financial illiterate is very low. Yes, you think you have done your job telling us about cats and dogs and vacations so people have to follow only what you have to sell- real estate. Please show some professionalism.”

    Actually what Marko is saying is totally spot on. Young professionals are the driving force in the market and will be least affected by these rule changes. Double salaries putting household income above $120K is pretty common (nurses, teachers, cops, engineers, techies, etc).

    These folks are the ones that are also being the most financially responsible.

    Why is it more common that people earning $25k-35k/yr take on a $700/month car payment? I have no idea, but I see it all the time.

    Learning more and more about these changes and it seems the biggest hurt will be put on real estate investors, and owners of rental properties – the marginal borrowers are just collateral damage at this point.

    One day later I’m already receiving notices from multiple non-bank lenders that they are immediately suspending their rental programs and other unique/flexible lending programs. RBC, CIBC, Scotia and the credit unions are seeing their market share double overnight.

  267. Much of the commentary so far is that developments in Western Communities that cater to FTHB’s are going to see a drop. Some of that may be mitigated by the FTHB’s that are now officially priced out of Esquimalt, View Royal, Saanich and other core communities.

    I am included in this category and now face the choice of adjusting the property type I am looking to purchase or adjusting the location. My housing budget just dropped 25% overnight, which is pretty disheartening. I don’t disagree with the changes; however, it is frustrating that if I had the means 5 years ago, I could have been in a 35 year am at 3%. I spent the last few years greatly improving my financial position to be able to qualify for a mortgage. Now I am priced out of a location and qualify for less so it feels like a double whammy.

  268. Sorry, I forgot about the old username Just Renter that’s why I posted it twice. Sam is my name.

  269. JustRenter
    This is what people need to hear, not those same stories that Marko and others….

    The Truth Hurts.

    In my circles, the young couples bought in the core are:
    a) living in “tear down”, diy, building sweat equity.
    b) 2 pro w/ big checks.
    c) become slumlords, or even live in their own basements.
    They sold their cars, bikes, toys and cut back expenses.

    The young couples are still hunting for their 1st home are:
    a) no compromise. Want/Need location & land size & newer house
    b) the universe is against them.
    They keep saying the houses are too expensive while drinking $5 coffee, playing on the newest cellphones, shopping for another must-have new toys, FB in fancy restaurants.

    Somehow, their moldy basement suits are better than “tear-down” in prime locations or new houses in Happy Valley, or else, they will be home owners as they wish long time ago.

  270. Thank you Mike Grace. This is what people need to hear, not those same stories that Marko and others love to tell how two professionals with big salaries etc. etc. are constantly keeping the market hot. Yes, with debt Marko, with a lot of debt! Not doing a good job when young’s financial literacy is very low. Yes, you think you have done your job telling us about cats and dogs and vacations so people have to follow only what you have to sell- real estate. Please show some professionalism.

  271. Thank you Mike Grace. This is what people need to hear, not those same stories that Marko and others love to tell how two professionals with big salaries etc. etc. are constantly keeping the market hot. Yes, with debt Marko, with a lot of debt! Not doing a good job when young’s financial illiterate is very low. Yes, you think you have done your job telling us about cats and dogs and vacations so people have to follow only what you have to sell- real estate. Please show some professionalism.

  272. There seems to be some consensus that the lower end will see an bigger impact but I don’t think the impact of move-up buyers into the better neighbourhoods has been brought up too much yet.

  273. @ LeoS

    At this point this is still a bit of a grey area within the industry – nobody is really too sure how this will play out. In the coming days, and week we’ll likely see policy updates from various lenders which will make this a little more clear.

    Mortgages between 65-80%LTV are often back-insured by lenders at their expense. Since they are back-insured it’s likely new qualification standards will still apply. Some chartered banks, and credit unions in Canada however, do not back-insure these conventional mortgages, and could continue to qualify at the actual interest rate, and lengthened amortizations.

    This could provide a competitive advantage to these specific banks in that the amounts they can lend will be bigger than what the majority will be allowed to do.

    We will have to wait and see. Working through various client’s files today and I’m seeing significant impacts to their bottom lines.

    I heard a great quote from a broker back east that said, “it’s like interest rates doubled overnight.”

  274. “Take another half million off on that Vancouver house and it might start to sound reasonable.”

    Barrister, it’s the same price now as the Oak Bay/Fairfield new builds are selling for, but probably for not much longer.

  275. Another question, what’s to stop the big banks from drastically lowering their posted rates to reduce the sting of these regulations? I never did understand the point of ridiculous posted rates in the first place.

  276. Personally, I’m surprised by the low number of high ratio mortgages. I thought it would have been way higher with how expensive SFH in core have become.

    From personal experience those younger individuals buying in the core are typically 2x professionals that have large salaries. They typically have some financial discipline and often they will have 10 to 15% down. One set of parents often bumps it up to 20% down.

    This is a function of the core being ridiculously expensive. If you aren’t 2x professionals, there is really no hope. Socioeconomically speaking also if there are 2x professionals buying the odds are the one or the other has well to do parents, or just parents with a ton on equity in there personal home.

    The older folk buying typically have some equity from selling a place in Vancouver or similar; therefore, you don’t see the high ratio mortgages there.

  277. Reasonfirst:

    Hope you find what you are looking for; I imagine there might be a bit of a scramble in the next few days. Make sure that any offer is conditional on financing. I am not sure whether the pre approvals meet with the deadline rules for CHMC insurance. Does anyone know?

  278. Robert McLister from CMT says:

    1) Effective Oct. 17, the qualification rate will now apply to all insured mortgages (even high- and low-LTV 5-year fixed terms, which is not the case today).

    Mike Grace, can you confirm it applies to low LTV (conventional) mortgages as well? I’ve seen conflicting info on this. If it does then the effect could be huge.

  279. Barrister – my dad’s 95 :-). Couldn’t spend it if he tried but he is living in a nice retirement home.

  280. Personally, I’m surprised by the low number of high ratio mortgages. I thought it would have been way higher with how expensive SFH in core have become.

    Also in 2011 it was 25%. Maybe first time buyers have already been squeezed out in favour of buyers with more resources or move-up buyers.

    @Reasonfirst

    Does this mean mortgages that are insured by the banks in the background? Or am I missing something.

    Yes. Lenders take their portfolios and insure it in bulk. However part of the announcement was restrictions on the quality of those (nothing over $1 million, and nothing over 25 year amorts) and there is a discussion on sharing risk so even the insured mortgages will remain partially on the bank’s books.

  281. Dear Reasonfirst:

    I hope you really appreciate your dad; I would have bought a sailboat and just sent you a postcard from Crete.

    On a different note, what are the banks doing with pre approved mortgage commitments? Are they pulling or limited their availability?

  282. Dear Hawk:

    Take another half million off on that Vancouver house and it might start to sound reasonable.
    Hopefully, a lot of Canadians were able to grab the money from the speculators and the foreigners and bugger the hell out of that nest of ridiculous high rises and impossible traffic.

  283. “Ottawa also unveiled new measures aimed at portfolio insurance, a type of bulk insurance that banks use for mortgages with down payments of 20 per cent or more. Starting Nov. 30, the federal government will now require portfolio-insured mortgages to qualify under the same criteria used for the insurance taken out on homeowners with small down payments. Portfolio-insured mortgages will now be limited to a maximum amortization period of 25 years and a maximum purchase price of less than $1-million. It requires all portfolio-insured mortgages to be owner-occupied, prohibiting insurance on rental homes and investment properties.”

    http://www.theglobeandmail.com/news/national/ottawa-unveils-new-housing-measures-to-slow-foreign-real-estate-investment/article32206297/

  284. This could be a biggie.

    “Non-balance sheet lenders could apply rate premiums to amortizations over 25 years since they can no longer be insured. That’s no small point. Mortgages with amortizations longer than 25 years accounted for over half of all portfolio insurance underwritten by CMHC through June.”

  285. Dear Bingo:

    I suspect that most of the purchasers in the core are not first time buyers. One quarter of the purchasers are cash buyers. My guess is that cash buyers are predominately older and often retirees; including people downsizing into condos.

    I agree with you that the builders will take a wait and see attitude and will be extremely reluctant to drop prices. But if their market segment is first time buyers they will be faced with the classic problem of you cant get blood from a stone. By way of example, if most first time buyers had the ability to pay 500k, then under the new rules, they would be down to about 400k. You are going to have to wait an awfully long time for these buyers to come up with an extra 100k. Throwing in free granite does not help when the money is simply not there.

    I have no idea, nor does anyone else, whether the bank of mom and pop are already tapped out. Time will tell that.

    The other question is how much can the builders actually reduce prices before they are selling at a loss. I have no idea and if someone else does I would appreciate the input. What are the profit margins on the entry level houses? One of the problems is that we really dont have firm statistics as to the percentage of houses are all cash or in which locations they are concentrated. The same goes for the other segments such as CHMC insured houses.

    My wife is using my crystal ball for a paper weight so your guess is as good as mine.

  286. “Maybe you should be a realtor if you are so on top of the game. You have this real estate “pumping” thing figured out way better than any realtor I know.”

    Nope, couldn’t do it, I have a conscience. 😉 It’s Sales 101, grab on to anything you can to make the client buy. Who do you think drives all these blind auctions ? Those who want to make money while they can.

    Politicians are attempting to control this market, if you’re a salesman you’re going ignore those statements of more changes coming that could effect your income ? Salesmen live or die by the sale, it’s eat or be eaten.

  287. When agents pump their clients because they need the sale to pay their own mortgage, yes I do. It’s just more FOMO in action. The market is more in tune to political comments on real estate more than ever.

    You give realtors too much credit for thinking ahead and being crafty.

    I get email and print (arghh.. what year is it?) propaganda from a few realtors. None mentioned the impending changes. Probably because there was nothing of substance to mention.

    I remember last time they changed rules (to 25 years on high ratio), I got isht about that from all the realtors. I expect something similar now that the announcement has been made and we know what the changes are. I don’t doubt they are spooling up now to print mass mailers.

    Maybe you should be a realtor if you are so on top of the game. You have this real estate “pumping” thing figured out way better than any realtor I know.

  288. My dad just sold his house in Van (at the peak I might add :-)). Now the new owner can’t sell at the same price. My dad gave me some money. The amount of money would likely be less if he decided to wait longer. I would have less to spend in Vic. Pretty simple cause and effect.

  289. From the financial post:

    “Morneau said that low-ratio insured mortgages — homebuyers who make a downpayment of at least 20 per cent of the property purchase price — will begin facing the same stricter eligibility requirements as homebuyers with lower down payments.”

    http://business.financialpost.com/personal-finance/mortgages-real-estate/federal-government-closing-tax-loophole-used-by-foreign-home-buyers

    It’s not just high-ratio. Does this mean mortgages that are insured by the banks in the background? Or am I missing something.

  290. “Ha. You think people think that far ahead? ”

    When agents pump their clients because they need the sale to pay their own mortgage, yes I do. It’s just more FOMO in action. The market is more in tune to political comments on real estate more than ever.

  291. “Perhaps the bank of mom and dad won’t have the same level of comfort in dishing out $s.”

    I would agree, most mom and pops will be taking a wait and see approach. Many of them didn’t forget about the early 80’s experience. As one agent said it was like you hiked the interest rates 2 points.

    Major changes like this take months to play out but Vancouver clearly shows the flippers who drove that market with laundered/heavily margined/mortgaged money are in deep shit.

    One MLS on Sam Cooper’s twitter shows a house bought for $3.2 from $2.6 ask price is now listed 6 months later for $3.16 million. There is blood on the streets but no one wants to admit they see it.

  292. Barrister said:

    Pricing should decrease to some degree to match up with the buyers ability to pay.

    Keyword, should. We’ll see. Do you watch any markets in BC other than Victoria and greater van? New builds often sit for a long time, finally selling for very close to asking. Builders are more inclined to offer incentives (“free” upgrades, e.g. quartz and granite up from laminate, better appliances etc) than drop price. Dropping price on a single unit sets a precedent for the rest of your stock and future stock (super important in the western communities where they have a lot more building lined up).

    My guess is that if this rule affects buyers in Victoria to any significant way (bank of mom might prevent that), then we are still a long ways off until price reductions. I doubt we’ll see any sales pricing on cookie cutter micro lots until spring. If spring doesn’t warm up sales (as per usual) then yeah, they’ll be thinking discounts.

    Personally, I’m surprised by the low number of high ratio mortgages. I thought it would have been way higher with how expensive SFH in core have become.

    Hawk said:

    You have to wonder if the late month surge here was from some buyers worried about new rules coming in.

    Ha. You think people think that far ahead? People aren’t going to worry about something that hasn’t been announced yet. If there is a rush, it’ll be between now and the 17th.

    I’d explain away the end of Sept by families getting back into a routine, and therefor having time to think about open houses etc. I may be projecting, but no way I’d add buying a house into the craziness that is back to school.

  293. Bad omen…
    I think the new rules will affect overextended speculators more than first time buyers. Firt timers are obviously getting cash from mom and dad anyway. And anyone speculating will put as little down as possible and amortize for as long as possible.

  294. From Vancouver

    Sales of detached properties decreased 47.6 per cent last month from September 2015.

    The benchmark price for detached properties is $1,579,400 — a 0.1 per cent increase from August 2016, and a 33.7 per cent rise from September 2015.

    From Calgary

    With 1,488 properties sold, overall home sales were up nearly 2.1 per cent from September 2015 levels, snapping a 21-month streak of year-over-year declines.

    The increase was fuelled by single-family sales (945), which were up 4.3 per cent from 2015, and attached housing sales, such as duplexes (338), which were up 19 per cent. Meanwhile, the apartment market was down 22.8 per cent from last year, with 200 units sold.

    Average prices were up: both the raw average ($491,462, up 7.2 per cent) and median price ($433,750, up 2.1 per cent) increased from September 2015 levels. But CREB’s data suggests home values are relatively static, with the benchmark price — the price of a typical home in the market — down 4.1 per cent from last year to $440,400, and up just $200 from August.

    It’s interesting how sticky prices are, I blame it on low interest rates. Calgary is obviously hurting big time and prices only down 4.1%? Vancouver up 34% in 12 months and then basically flat despite foreign tax, Airbnb crackdown, etc.

    We saw it in Victoria too when we had months of 5000 inventory, 500 sales and prices weren’t really moving.

  295. You have to wonder if the late month surge here was from some buyers worried about new rules coming in. It’s been out there for a few months now something was coming down. Christy saying it again a couple times the last few weeks as well may have fueled some agents to pump their clients to make the move sooner than later.

    Vancouver home sales drop nearly 33% as new tax takes hold

    “There were 666 sales of detached houses in Greater Vancouver last month, a 47.6-per-cent decline from a year earlier. Sales also decreased for condos and townhomes, though not as steeply as for detached properties.”

    http://www.theglobeandmail.com/real-estate/the-market/vancouver-home-sales-drop-nearly-33-in-september/article32229083/

  296. I suspect that for the majority of first time buyers this change will end up being a positive thing. Pricing should decrease to some degree to match up with the buyers ability to pay.Overalll, they will also be a bit less vulnerable if interest rates start to push up to historical norms.In short they will be able to buy the same product for a discount of maybe ten or even 15 percent but only assuming that the developers have that much profit margin to cut.

  297. What I found interesting is that there may have been a substantial decline of out of town purchasers.
    I wonder to what extent this is linked to Vancouvers real estate market cratering. I am sure that someone will point out that the percentage of out of town purchasers has always been small and therefore insignificant. I am not trying to revive that debate, The fact of the matter is that we dont seem to have very accurate numbers available for out of town purchases much less numbers on the percentage of gross dollar sales to non locals. Personally, I suspect that having a few hundred million of fresh capital injected into a housing market has to have some impact unless the same amount is bleeding out of the city. But I have often been proven wrong.

  298. I also have the one for June 2016

    Thanks. Looks like high ratio mortgages are down a bit. Is there also fewer first time buyers according to that survey?

    My feeling is the market will flatten out

    Hopefully the conditions will relax somewhat although I don’t think it’s quite enough to return to fully balanced territory yet. At least we might avoid another big jump immediately

  299. I think there is a lot of profit in these developments right now. They could easily survive a price hit. West hills is more than doubling their build cost per house right now.

  300. I wonder if some of the west shore developments aimed at first time buyers are being put on hold right now. Can some of these projects have any chance of being profitable if the targeted buyers financing ability has been decreased by twenty percent?

    I am not at all familiar with the west shore but how many of the new condos and subdivisions are aimed and dependent on first time buyers?

    A big chunk of development in Langford is aimed at first time buyers. Pretty much all condos, townhomes, and a decent chunk of single family homes too.

    I don’t know how many developments will be put on hold. There are way way too many recent variables to try and figure out what happens next. Don’t forget the variable of no property transfer tax on new builds under 750k introduced earlier this year.

    We have record low inventory with exceptionally high sales numbers with a bunch of recent provincial and federal legislation thrown at the market in a very short period.

    My feeling is the market will flatten out. For it to drop I think actual interest rates need to go up, not just qualification criteria. There will be ways to skirt qualification criteria and the bank of mom and dad will step into play in a bigger role in my opinion.

    I’ve had a few first times buyers looking for >1 year while the market has gone up 25% and it’s gone from we can do this on our own to “yea, our parents will help up with the 20% downpayment.”

  301. I wonder if some of the west shore developments aimed at first time buyers are being put on hold right now. Can some of these projects have any chance of being profitable if the targeted buyers financing ability has been decreased by twenty percent?

    I am not at all familiar with the west shore but how many of the new condos and subdivisions are aimed and dependent on first time buyers?

  302. I also have the one for June 2016

    Conventional mortgage (20% or more down payment) 251 47.7%
    High ratio mortgage (less than 20% down payment) 91 17.3%
    All cash 126 24.0%
    Don’t know 58 11.0%
    Total Responses 526 89.0%

  303. For August 2016

    Conventional mortgage (20% or more down payment) 200 50.8%
    High ratio mortgage (less than 20% down payment) 61 15.5%
    All cash 79 20.1%
    Don’t know 54 13.7%
    Total Responses 394 100.0%

Comments are closed.