October 6, 2016

Minister Morneau Closes Loophole for Foreign Buyers

On October 3, 2016, federal Finance Minister Bill Morneau announced a series of proposed changes to federal policies and legislation affecting mortgage loan insurance, mortgage lending rules, and tax treatment of capital gains from principal residences for foreign buyers.  We don’t expect that these measures are likely to have a significant impact on traditional homebuyers, including first-time buyers. 


While details of these measures are still emerging, they appear to be fairly consistent with CHBA’s advocacy on protecting first-time buyers from undue mortgage restrictions; supporting CRA’s efforts to ensure that buyers are playing fairly and receiving equal tax treatment; and not introducing a tax on new construction or macro-prudential action that has a broad effect across the country. 


CHBA advocates that the prime objective of federal housing policy should be to support stability and predictability in Canada’s housing markets and housing finance system. Federal officials seem to be committed to multi-level, intergovernmental action as CHBA advocates.


Details of proposed changes to federal policies and legislation affecting mortgage loan insurance, mortgage lending rules, and tax treatment of capital gains from principal residences are as follows:


  • Proposed changes to the Income Tax Act will clarify that an individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.  Trusts will be eligible to designate a property as a principal residence for a tax year that begins after 2016 only if additional eligibility criteria are met.


  • The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed.  The CRA will have the authority to assess taxpayers beyond the normal assessment limitation period for a tax year in cases where the disposition is not reported in the taxpayer’s tax return.


  • Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance at an interest rate that is the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. (This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years.)  To qualify for mortgage insurance, a homebuyer must have a GDS ratio no greater than 39 per cent and a TDS ratio no greater than 44 per cent.
    NOTE: There is some uncertainty in terms of the details and the extent of the impact for this measure and CHBA has accordingly commissioned a more detailed assessment of it.

  • Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages.


Associated with these impending changes, the Minister also announced public consultations this fall “to seek information and feedback on how modifying the distribution of risk in the housing finance framework by introducing a modest level of lender risk sharing for government-backed insured mortgages that could enhance the current system”. 


In addition, the CRA will continue to work with provincial partners to seek ways to further improve information collected on real estate transactions, and to ensure the effective sharing of this information with tax authorities.




For more information, please contact:

Kevin Lee, P.ENG.,M.ARCH.

Canadian Home Builders' Association

150 Laurier Ave. W. Suite 500, Ottawa, ON K1P 5J4

tel: 613-230-3060 ext. 222

e-mail: [email protected]