As of January 2025, a number of policies impacting Canadian consumers and real estate professionals have come into effect. Below you will find a breakdown of new and updated policies and regulations that may affect both your business and your clients.
Federal Updates
Deferral of the Capital Gains Tax Implementation
On January 31, 2025, Canada’s Finance Minister, Dominic LeBlanc, announced that the planned increase to the capital gains inclusion rate has been postponed. Originally set to take effect on June 25, 2024, the change will now be implemented on January 1, 2026. This means that until 2026, the portion of capital gains subject to tax remains unchanged.
To ensure most middle-class Canadians do not pay higher taxes when the new rate takes effect, the government will:
- Maintain the Principal Residence Exemption: Profits from selling a primary home will continue to be tax-free.
- Introduce a $250,000 Annual Threshold: As of January 1, 2026, individuals can earn up to $250,000 in capital gains annually at the current tax rate before the increased rate applies.
- Increase the Lifetime Capital Gains Exemption: Effective June 25, 2024, the exemption for selling small business shares and farming or fishing properties was raised to $1.25 million from the current $1,016,836. This increase will allow Canadians with eligible capital gains below 2.25 million to pay less in tax, even after the inclusion rate increases in 2026.
- Launch the Canadian Entrepreneurs’ Incentive: Beginning in the 2025 tax year, this incentive reduces the taxable portion of eligible capital gains to one-third for a lifetime maximum of $2 million, encouraging entrepreneurship.
These measures aim to provide clarity and support to Canadians as they plan their finances ahead of the upcoming tax season. To learn more, visit the Government of Canada website.
Adjustments to Mortgage Rules for Homebuyers
The Canadian government recently announced significant changes to mortgage rules in an effort to assist first-time homebuyers and stimulate new housing construction. These changes came into effect on December 15, 2024.
Key changes include:
- Extended amortization periods: Insured mortgages had previously been extended from 25 to 30 years for first-time homebuyers purchasing new builds, including condos, to encourage new home construction. Now, with inflation and interest rates declining, this is being extended to all first-time homebuyers and all buyers of new builds. This change aims to lower monthly mortgage payments, making home ownership more affordable while continuing to support new home construction.
- Increased insured mortgage cap: The cap on insured mortgages was raised from $1 million to $1.5 million. This adjustment allows buyers in higher-priced markets, such as Toronto and Vancouver, to qualify for mortgage insurance with a minimum 5% down payment, giving them access to homes previously requiring at least a 20% down payment.
To learn more, visit the Government of Canada website.
Provincial Updates
New British Columbia Home Flipping Tax
As of January 1, 2025, British Columbia has implemented a home flipping tax targeting short-term property sales, in addition to the existing federal property flipping tax.
Key details:
- The tax applies to income from sales of residential properties, presale contracts, or assignments owned for less than two years (730 days).
- This includes properties purchased before January 1, 2025, if sold on or after that date and owned for less than two years.
- The tax rate is as follows:
- 20% for sales within the first 365 days of ownership.
- Gradually decreases until eliminated at 730 days.
- The tax applies to all sellers (individuals, corporations, partnerships and trusts), regardless of residency.
- There are exemptions available (ex. primary residences), although they are subject to specific conditions and filing requirements.
This tax adds another consideration for property owners and investors, particularly those engaging in short-term sales. To learn more, visit the Province of British Columbia website.
