New Year, New Rules: What’s New in Real Estate for 2023?

With a new year comes….. a number of new rules affecting the real estate market in 2023!
Here’s what you need to know:

Buyer’s Rescission Right

New amendments to the provincial Property Law Act (s. 42(1)) and associated Home Buyer Rescission Period Regulations came into effect in January 2023. The purposes of the regulations are to give those with “buyer’s remorse” a chance to get out of a real estate contract by paying only a small Rescission Fee to the seller. The idea stems from challenges faced by buyers at peak market prices and frenzy, where buyers felt compelled to write subject-free offers to ensure that their bids would be competitive. Current market conditions have seen a “cooling off” since these peak times, but the principal still applies – buyers should have a period of time in which they may perform “due diligence”. Of course, the interest of the seller must also be considered (it wouldn’t be fair to have a buyer back out 2 weeks after writing an offer); thus, legislators have given buyers a 3-day Rescission Period, excluding weekends and statutory holidays and starting the day after the offer is accepted. For example, if the buyer’s offer to purchase a property is accepted on a Thursday, Tuesday would be the last date on which the buyer could rescind (cancel) the offer.

Highlights:

• Rescission Rights give the buyer the option to cancel the contract within 3 business days of the acceptance of the offer, by giving written notice to the seller.
• The buyer and seller cannot “contract out” of the Rescission Rules and the buyer cannot waive his Rescission Rights.
• If a buyer exercises the Rescission Right, the buyer must pay a Rescission Fee of 0.25% of the purchase price to the Seller. If the buyer paid a deposit, the Rescission Fee will be deducted from the deposit. (Note to sellers: it is a good idea to ask for a deposit “upon acceptance” of the offer and to ensure that such deposit is enough to cover the Rescission Fee).
• Rescission Rights are applicable for residential real estate contracts – with or without subject conditions – but are not applicable to leasehold lands or interests, to property sold at auction or by court order, or to presale condo transactions.

Foreigners Banned from Buying Residential Property

Under the new federal Prohibition on the Purchase of Residential Property by Non-Canadians Act, foreign buyers are banned from buying residential homes in Canada for the next two years. The legislation was approved in the summer of 2022 in response to the idea that foreign investors have caused inflation in the Canadian housing market. This legislation is just one of many ways in which government has aimed to tackle the housing crisis, to reign in housing affordability and prevent the commoditization of homes. (BC has also seen a change to provincial laws to expand the application of Speculation Tax and a federal Speculation Tax has been enacted as well). The Act came into force on January 1, 2023.

Highlights:

• Foreign buyers are prohibited from directly or indirectly purchasing an interest in residential property (for example, through beneficial holdings and trusts, which must legally be disclosed in the Land Owner Transparency Registry.
• There are exemptions under the Act including for: temporary residents; students; exempted foreign nationals such as refugees; and acquisition of property as a result of death or divorce.

Anti-Flipping Tax

On theme with objectives seen in above-noted legislative changes, the federal government has also announced taxation changes through the Canada Revenue Agency (CRA), which are further aimed at “cool[ing] excessive price growth” in housing markets.

These new federal taxation rules now mean that if a seller owns residential property for less than 1 year before the date of disposition (sale), the seller’s profits on the sale will be deemed business income and will be taxed accordingly.

Highlights:

• Taxation applies to dispositions taking place on January 1, 2023 and later.
• Previously: if a residential property was declared to be the owner’s principal residence, upon sale, the owner could claim a principal residence exemption from capital gains, meaning that any profit (increased property equity from the time of purchase to the time of sale) would be tax-free.
• Now: even if the residential property is declared to be the owner’s principal residence, if the owner sells the property within 1 year of purchasing the property, the sale is deemed to be a “flip” (a sale for the purpose of turning a profit off real estate). “Flipped residential property” is now classified as a business activity and is, therefore, not eligible for a capital gains exemption, meaning that the seller will be taxed on all profit as if it were business income.
• Some exemptions are available where disposition of property is necessary due to changes in life circumstances (pregnancy, death, employment, divorce, disability)

Summary

Recent legislation has all been aimed at reducing incentives for speculation and house flipping to make the real estate market widely affordable to more Canadians. Putting the legislators’ goals aside, buyers and sellers are left to navigate substantial changes to an already complex set of rules and timelines in the real estate world.

Krische & Co. Notaries is here to help buyers and sellers cross the finish line and to complete on their real estate transactions. (And, by the way, we know some good accountants to give you the tax advice you need before you hire your Realtor (we know some good Realtors too))! If you are moving, give us a call at 604-576-3211. We love to help.