28 Feb

Updates to the Property Transfer Tax (PTT) Effective April 1, 2024

General

Posted by: Cheryl Johns

Good afternoon

Thank you, Tony Spagnuolo from Spagnuolo and Company LLP, for the updated information below.

The BC NDP Government has been active to start 2024. Last week, the provincial budget was tabled, and a couple of big changes are coming to the real estate market.

Updates to the Property Transfer Tax (PTT) Framework

The 2024 provincial budget the BC Government is making three significant changes to the PTT Framework

1. Increase the Fair Market Value Threshold for the First Time Home Buyer (FTHB) Exemption:

Currently, the FTHB full exemption applies to properties with a fair market value (FMV) of less than $500,000, with a partial exemption for properties with a FMV of $500,000 to $525,000.

As of April 1st, 2024, the FTHB exemption will apply to properties in a different way. For properties with a FMV of less than $835,000, PTT is not payable on the first $500,000, but payable on the difference between the FMV and $500,000. For example, if the FMV of the property is $700,000, PTT paid would be 2% of $200,000 ($700,000 less $500,000). Not paying PTT on the first $500,000 saves the purchaser a total of $8,000.

If the property has a FMV between $835,000 and $860,000, then a partial exemption applies, the details of which are not yet confirmed by the BC government.

If the FMV of the property is over $860,000, then there is no FTHB PTT exemption.

2. Increase the FMV Threshold for the Newly Built Home Exemption

Effective April 1, 2024, the FMV threshold to claim the Newly Built Home Exemption will be increased from $750,000 to $1,100,000. A partial exemption is also available for properties with a FMV just above the threshold. The phase out range is $50,000 above the threshold, so properties with a FMV of greater than $1,150,000 will not be able to claim the Newly Built Home Exemption.

3. Purpose-Built Rental Exemption

The 2023 Budget included a limited exemption for purpose built rental buildings, that may limit the tax payable on values over $3,000,000. Budget 2024 builds on this exemption and provides an exemption from the PTT on purchases of new qualifying purpose-built rental buildings.

New “Flipping Tax”

A new tax targeting home flipping activity and short-term speculation will officially begin on January 1, 2025. This tax will apply on the sale of residential property held by an owner for less than two years, with the seller being taxed up to 20% of the income from the sales. To specify, properties sold within 1 year are taxed at 20%, and will decline to zero between 366 and 730 days. Exemptions may apply in certain circumstances.

As with most legislation, other conditions may apply and there is some nuance to the above summary. Please do not hesitate to contact our lawyers if you have any questions on the above.

As always, thank you for your support.

Information Provided by Tony Spagnuolo from Spagnuolo and Company LLP

20 Feb

Canadian Inflation Falls to 2.9% in January, Boosting Rate Cut Prospects

General

Posted by: Cheryl Johns

Canadian Inflation Falls to 2.9% in January, Boosting Rate Cut Prospects
The Consumer Price Index (CPI) rose 2.9% year-over-year in January, down sharply from December’s 3.4% reading. The most significant contributor to the deceleration was a 4% decline in y/y gasoline prices, compared to a 1.4% rise the month before (see chart below). Excluding gasoline, headline CPI slowed to 3.2% y/y, down from 3.5% in December.

Headline inflation of 2.9% marks the first time since June that inflation has moved into the Bank of Canada 1%-to-3% target band and only the second time to breach that band since March 2021.

Grocery price inflation also decelerated broadly in January to 3.4% y/y, down from 4.7% in December. Lower prices for airfares and travel tours also contributed to the headline deceleration. Prices for clothing and footwear were 1.3% lower than levels from a year ago, potentially reflecting the discounting of winter clothing after a milder-than-usual winter in much of the country.

The shelter component of inflation remains by far the largest contributor to annual inflation. The effect of past central bank rate hikes feeds into the CPI with a lag. The y/y growth in mortgage interest costs edged lower in January but still posted a 27.4% rise and accounted for about a quarter of the total annual inflation. Inflation, excluding mortgage costs, is now at 2.0%. Home rent prices continue to rise, but another component under shelter – homeowners’ replacement costs inched lower on slower house price growth.

On a monthly basis, the CPI was unchanged in January, following a 0.3% decline in December. On a seasonally adjusted monthly basis, the CPI fell 0.1% in January, the first decline since May 2020.
The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed three ticks to 3.4%, and the median declined two ticks to 3.3% from year-ago levels, as shown in the chart below.

Notably, the share of the CPI basket of goods and services growing at more than 5% has declined from the peak of 68% in May 2022 to 28% in January 2024.
Bottom Line

The next meeting of the Bank of Canada Governing Council is on March 6. While January’s inflation report was better than expected and shows that the breadth of inflation is narrowing, it is still well above the level consistent with the 2% inflation target.

Shelter inflation will remain sticky as higher mortgage rates over the course of last year filter into the index and the acute housing shortage boosts rents.

The Bank of Canada will remain cautious in the face of still-high wage gains and core inflation measures above 3%. I hold to my view that the Bank will begin cutting rates in June.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres