Real Estate Blog for Buyers and Sellers - Conor McGowan

BC property assessments are in – find out what it means for YOUR home

If you're a BC homeowner, important mail regarding your property assessment is headed your way! It's vital to understand the valuation of July 1, 2022 provided on these statements — because with half-a-year gone since then and major changes that've come along in this time period; it could be vastly different from today. Don't miss out on what can affect decisions about borrowing money or paying taxes: check those assessments now!“Since July 1, we know that the real estate market has changed as interest rates continue to rise and overall sales volume has declined,” BC Assessment Assessor Bryan Murao said in last month’s previews of assessments “As a result, your next property assessment will likely be higher than what the current market value might be, but that will be the same for everyone.”Murao noted that again on Tuesday, but added that “despite the real estate market peaking last spring and showing signs of cooling down by summer, homes were still selling notably higher around July 1, 2022 compared to the previous year.” He says homeowners can expect about a 10% increase in value in Greater Vancouver and about a 15% increase in the Fraser Valley, but the key phrase here is compared to the previous year, which is technically referring to July 1, 2021.With property valuations ticking upwards each year, it’s important to consider why they're still relevant when their values are outdated. This begs the question: what purpose do these assessments really serve? Dive into this fascinating topic and find out how you can benefit from the big changes ahead. Property Assessments and Property Taxes The first thing to know is that the property assessments BC Assessment generates are really not for individual homeowners. Though homeowners are sent assessment notices, they are generated primarily for tax jurisdictions, such as “municipal governments, regional districts, and Ministries of Education and Health,” according to BC Assessment. Independent of BC Assessment, those entities then use the assessments as the foundation for dividing up and levying property taxes in order to fund services for their respective communities. Property valuations are determined by numerous factors, including but not limited to: size, age, quality, location, present use, property type, and land value, but an increase in your property’s value is not a guarantee that you will be paying more in property taxes. “It is important to understand that changes in property assessments do not automatically translate into a corresponding change in property taxes,” BC Assessment Assessor Bryan Murao said in a press release on Tuesday. “As noted on your Assessment Notice, how your assessment changes relative to the average change in your community is what may affect your property taxes.” As mentioned, your latest property assessment has likely gone up compared to the previous one. However, all your neighbours likely saw theirs go up, too, which means the amount of property taxes you pay will very likely not change based on the increased assessment value alone. (But it could change as a result of your municipality changing their tax rate.) A scenario where the amount of property taxes you have to pay would be increased is if, for example, you live in a townhouse and your property value has increased by an amount higher than the average for townhouses in your region. Property Assessments and Market Value For those who are thinking about being active in the real estate market, seeing a government valuation (BC Assessment is a Crown corporation) of your property may naturally result in you thinking that your valuation is what you’d get — perhaps at the very least — if you put your house on the market. Not so fast, though. A small snapshot of how the market has changed since the summer: in August, the Real Estate Board of Greater Vancouver (REBGV) registered 1,870 residential sales, while in December, they recorded nearly one-third fewer sales with a total of 1,295. In terms of prices, the benchmark prices for all residential properties in August was $1,180,500, but dropped to $1,114,300 in December. (Interest rates increased from 2.5% to 4.25% in that same span.) Even putting aside the fact that market conditions have changed, it’s generally not recommended to use your BC Assessment as a measure of market value. “A lot of people don’t understand the purpose of BC Assessment,” Kevin O’Toole, a Vancouver-based Managing Broker at Sotheby’s International Realty Canada tells STOREYS. “It’s more for municipalities and how they will divide property taxes among municipalities. Whether your value goes up or down, it rarely affects property taxes [and] I would never use it to gauge market value. It’s not intended for market use.” “The valuation means very little,” O’Toole added. “Almost nothing.” Asked whether this is because of how BC Assessment goes about the assessments, or whether it’s because the assessments are dated to July 1, O’Toole says it’s a bit of both and that even if BC Assessment assessed your property today, it may not be accurate. Anecdotally, O’Toole — who has been a realtor in Vancouver for over 15 years — says he has seen BC Assessment assess a home that was sold on July 1, at a different price then what it actually sold for. None of this is to disparage BC Assessment, as he says assessors for BC Assessment do the best they can, but are generally just not on the ground and often don’t look at certain factors that can affect market value, such as presentation and staging. So, how should homeowners take their assessments? Are they of any use? O’Toole says that the assessments are “a snapshot of a moment in time.” Where they could possibly be of use to homeowners, he says, is if homeowners looked at the trajectory of the property’s valuation over a number of years, which could provide a better picture of equity. (The BC Assessment values are also directly used to determine whether homeowners are eligible for the Province’s Home Owner Grant.) If you’re thinking about putting your property on the market and want to get a valuation, O’Toole says, it’s still best to bring in a realtor or property appraiser. And for those worried about the assessments impacting their property taxes, O’Toole points out BC Assessment’s appeal process, but notes that the deadline — Tuesday, January 31 — is quickly approaching. It may seem like an arduous process, but O’Toole says he has been involved with appeals and has seen some successful ones. Written ByHoward Chaihttps://storeys.com/bc-property-assessments-release-january-2023/?utm_campaign=Newswire_Real%20Estate%20Insider&utm_medium=email&_hsmi=240529790&_hsenc=p2ANqtz--81hF2xO7nUsMkeR2seiIbZmbFmR2Pv5tClWh__cQMoc1TJXqFcuwy3knDY5ovfSfS9TuD1jDbYfLJdDqqHsCqEfSx6g&utm_content=240529790&utm_source=hs_email

Tax-Free First Home Savings Account – your questions answered

Exciting news! The federal government has announced a new registered savings plan specifically designed to give Canadians the boost they need for purchasing their first home. Find out all the details, including who qualifies and more – this could be an incredible opportunity you don't want to miss out on.The Tax-Free First Home Savings Account (FHSA) was first proposed in Budget 2022. A backgrounder1 and draft legislation was released on August 9, 2022, which provided more details on the plan’s design. On November 4, 2022, the revised legislation was released as part of Bill C-32 (Fall Economic Statement Implementation Act, 2022) and included additional changes2. Assuming the bill will be passed, the FHSA rules will enter into force on April 1, 2023.Get informed on the new government policy which will have a big impact - The FHSA Proposals, answering all your questions and outlining what this could mean for you.Prospective first-time home buyers have a great way to save for their purchase - the FHSA! It's like an RRSP and TFSA combined, allowing you to deduct your contributions from taxes, enjoy tax-free income and gains inside it as well as make withdrawal without any added taxation. On top of that, you can accumulate up $40k in total assets using this method – don’t miss out on all these incredible benefits! Who is eligible? To open an FHSA, you must: be an individual resident of Canada be at least 18 years of age be a first-time home buyer, which means you, or your spouse or common-law partner (“spouse”) did not own a qualifying home that you lived in as a principal place of residence at any time in the year the account is opened or the preceding four calendar years For the purposes of the first-time home buyer’s test, a home owned by your spouse in which you lived during the relevant period will only put you offside of the test if that person is still your spouse when the FHSA is opened. How much can you contribute? You can contribute up to $40,000 over your lifetime and up to $8,000 in any one year, including 2023 even though the rules don’t come into effect until April 1, 2023. The annual contribution limit applies to contributions made within the calendar year. Unlike RRSPs, contributions made within the first 60 days of a given calendar year cannot be attributed to the previous tax year. You may carry forward up to $8,000 of your unused annual contribution amount to use in a later year (subject to the lifetime contribution limit). For example, if you open an FHSA in 2023 and contribute $5,000, you can contribute up to $11,000 in 2024. Carry-forward amounts do not start accumulating until after you open an FHSA. You can hold more than one FHSA, but the total amount you can contribute to all of your FHSAs cannot exceed your annual and lifetime FHSA contribution limits. Like TFSAs and RRSPs, a tax on overcontributions to an FHSA would apply for each month (or part-month) that the account is over the limits. The tax applies at the rate of 1% to the highest amount of the excess that existed in that month. An overcontribution can be dealt with in few different ways. First, the account holder can wait until the following year, and then the additional annual contribution room that arises may absorb the excess contribution. Alternatively, it is possible to request that a “designated amount”, not exceeding the overcontribution, be returned to the account holder as a tax-free withdrawal or a transfer to an RRSP. If a tax-free withdrawal is received, the original contribution giving rise to the overcontribution is not deductible. Finally, a taxable withdrawal would also reduce an over-contribution to an FHSA. Finally, like RRSPs, you can make a contribution but defer the deduction until a later year. What types of investments can an FHSA hold? Permitted investments for FHSAs are the same as for TFSAs. These include mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates. The prohibited investment rules and non-qualified investment rules applicable to other registered plans will also apply to FHSAs. These rules are intended to disallow non-arm’s length investments and investments in assets such as land, shares of private corporations and general partnership units. Withdrawals Qualifying withdrawals to buy a qualifying home purchase are not taxable. To qualify, the withdrawal must meet these conditions: You must be a first-time home buyer when you make the withdrawal. There is an exception to allow individuals to make qualifying withdrawals within 30 days of moving into a qualifying home. You must have a written agreement to buy or build a qualifying home before October 1 of the year following the year of withdrawal, and you must intend to occupy the home as a principal place of residence within one year after buying or building it. A qualifying home is a housing unit located in Canada (or a share in a cooperative housing corporation that entitles the taxpayer to possess and have an equity interest in a housing unit located in Canada). Any funds left over after making a qualifying withdrawal can be transferred to an RRSP or registered retirement income fund (RRIF), penalty-free and tax deferred, as long as you transfer the remaining funds by December 31 of the following year, since the plan stops being an FHSA at that time. Transfers do not reduce or limit your available RRSP room. If you take out FHSA savings as a non-qualifying withdrawal, you must include the amount in income for the year of the withdrawal and tax will be withheld. Finally, withdrawals and transfers do not replenish FHSA contribution limits. Administration To open an FHSA, you will first need to confirm your eligibility to an eligible issuer. Financial institutions will have to file annual information returns with the Canada Revenue Agency (CRA) for each FHSA they administer. The CRA will use this information to administer the plans and provide basic FHSA information to taxpayers to help them determine how much they can contribute each year. Taxpayers will still need to monitor the limits to avoid overcontributions. To make a qualifying withdrawal, you will need to submit a request to your FHSA issuer confirming your eligibility. Issuers will not withhold taxes on qualifying withdrawals. When any withdrawals are made – qualifying or non-qualifying – the FHSA issuer must prepare an information slip stating the amount of the withdrawal and for non-qualifying withdrawals, the amount of income tax withheld. TOP QUESTIONS YOU MAY HAVE ABOUT FHSAs What happens if the FHSA funds are not used to purchase a first home? If you do not use the funds in your FHSA for a qualifying first home purchase by the earlier: the end of the 15th year after the plan was opened, or the end of the year you turn 71 years old, your FHSA will cease to be an FHSA and you must close the plan. Any unused balance in the plan can be transferred into an RRSP or RRIF or withdrawn on a taxable basis. If the plan is not closed prior to its “cessation date” described above or if the plan otherwise loses its status as a FHSA, the FHSA holder will have a deemed income inclusion equal to the fair market value of all property of the FHSA immediately before the cessation of FHSA status. Therefore, if a transfer to an RRSP or RRIF makes sense, it should be done before the plan loses its FHSA status. Since you can transfer funds from an FHSA to an RRSP or RRIF without affecting your RRSP limit, an FHSA may have appeal for those who rent their home. With an FHSA, they may still qualify as a first-time home buyer and accumulate funds on a tax-deferred basis, and they can still transfer the funds to an RRSP or RRIF if they do not eventually buy a qualifying home. Can I contribute to my spouse’s or child’s FHSA? The FHSA holder is the only taxpayer permitted to deduct contributions made to their FHSA. You cannot contribute to your spouse’s FHSA and claim a deduction. That said, the legislation allows an individual to make FHSA contributions with funds provided by their spouse without the attribution rules applying to the income earned in the FHSA from these contributions. Similarly, no attribution arises if you give cash to an adult child to contribute to their FHSA. What happens to my FHSA on my death? Like TFSAs, an individual may designate their spouse as the successor account holder and the account could maintain its tax-exempt status after the individual’s death. If the surviving spouse is named as the successor holder and meets the FHSA eligibility criteria, they would become the FHSA’s new holder immediately on the original holder’s death. The transfer would not affect the spouse’s own FHSA contribution limits. Note that if the deceased individual had an overcontribution to their FHSA immediately before death, the successor holder (i.e. the spouse) may be treated as having made a FHSA contribution at the beginning of the month following the death. The deemed contribution amount is the amount of the overcontribution but will be reduced by the fair market value of FHSA property that did not remain in the spouse’s plan. This deemed contribution will reduce the spouse’s FHSA contribution room, or potentially put the spouse in their own overcontribution position depending on the circumstances. If the surviving spouse is not eligible to open an FHSA, amounts in the FHSA could instead be transferred to an RRSP or RRIF, or withdrawn on a taxable basis. If the FHSA beneficiary is not the deceased account holder’s spouse, the funds would need to be withdrawn and paid to the beneficiary. Unlike RRSPs or RRIFs where the value of the plan is generally included as income in the account holder’s terminal return, the payment of the plan balance will be taxable to the beneficiary. If the plan beneficiary is the deceased’s estate, and the surviving spouse is an estate beneficiary, then the estate can pay the plan proceeds to the surviving spouse, and if a joint designation is made, the spouse will be treated as though they received a payment from the plan directly. This may allow for a transfer to the spouse’s FHSA, RRSP or RRIF and otherwise, the spouse will be taxed on the income. If the plan proceeds are paid or payable to another estate beneficiary, then the income may be taxable to them. The payment is also subject to withholding tax. Finally, if an FHSA is not closed by its cessation date (in this case, generally the end of the year following the year of the FHSA holder’s death), there will be a deemed income inclusion equal to the fair market value of all property of the FHSA immediately before the cessation of FHSA status at the hands of each beneficiary, or estate, if there are no named beneficiaries (i.e. it will not be included in the deceased holder’s terminal return). What happens to my FHSA in the case of a marital breakdown? On the breakdown of a marriage or common-law partnership, an amount may be transferred directly from the FHSA of one spouse to an FHSA, RRSP or RRIF of the other. These transfers would not restore any contribution room of the transferor or count against the contribution room of the transferee. If the transferor’s spouse has overcontributed, the amount eligible for transfer will be reduced. What happens to my FHSA if I emigrate from Canada? You can continue contributing to your existing FHSA after emigrating from Canada, but you cannot make a qualifying withdrawal as a non-resident. The rules specify that an individual withdrawing funds from an FHSA must be a resident of Canada at the time of withdrawal and up to the time a qualifying home is bought or built. Withdrawals by non-residents would be subject to withholding tax. I just immigrated to Canada. Can I open an FHSA? Once you become a Canadian resident, you can open an FHSA as long as you qualify under the rules discussed above. To determine whether you qualify as a first-time home buyer, you must consider a foreign home you owned that would be a qualifying property if it was located in Canada. You cannot open an FHSA in a year that you owned such a home or the four previous years. I’m a U.S. citizen. Can I open an FHSA? U.S. citizens are generally subject to tax on their worldwide income under U.S. tax rules. Income earned in Canadian registered accounts is generally taxed as it is earned, except for retirement plans, such as RRSPs and RRIFs, that qualify for relief under the Canada-U.S. income tax treaty. Other Canadian registered accounts of U.S. citizens, such as TFSAs and registered education savings plans (RESP), can create double tax problems and additional U.S. reporting requirements. TFSAs may be subject to tax under U.S. rules. It appears that FHSAs could create similar issues for U.S. citizens, so they should seek specific advice before opening a FHSA. Can I transfer amounts from my RRSP to an FHSA? You can transfer funds from an RRSP to an FHSA tax-free, up to the $40,000 lifetime and $8,000 annual contribution limits. These transfers would not restore your RRSP contribution room or generate a tax deduction. However, a subsequent qualifying withdrawal from the FHSA would be tax-free, essentially making it a tax-free RRSP withdrawal. To maximize RRSP room, it appears that making contributions to an FHSA is the preferred approach. If money is tight, however, the ability to use transfers from an RRSP will help you maximize your FHSA’s potential tax-free withdrawal. What’s my best bet: FHSA, Home Buyers’ Plan or TFSA? The Home Buyers’ Plan (HBP), first implemented in the early 1990s, allows a first-time home buyer to withdraw up to $35,000 from their RRSP to purchase or build a home without having to pay tax on the withdrawal. You must then repay any amounts withdrawn to an RRSP within 15 years, starting the second year following the year in which you made the withdrawal. The HBP continues to be available under existing rules. Thus, you can make both an FHSA withdrawal and HBP withdrawal for the same qualifying home purchase3. The best choice depends on different factors, such as timing and the potential amount that will be saved. The withdrawals under both plans can be made tax-free, but since you will have to repay the HBP withdrawal, it appears to make sense to contribute to an FHSA first. If savings are available after FHSA contributions, then making contributions to an RRSP with a view to later use the HBP may be the preferred option where the primary goal is to save money for a down payment on a home and there are insufficient funds in the RRSP to make a full HBP withdrawal. However, before making additional RRSP contributions to fund future HBP withdrawals, consideration should also be given to using a TFSA to save money beyond the FHSA. Where a choice must be made as there will be insufficient savings to do both, you’ll need to consider the benefits of each alternative. Although TFSAs are not specifically designed for first-time home savings, these plans are worth considering for several reasons, including: the ability to save money on a tax-free basis the lack of any requirement to repay amounts withdrawn from a TFSA, as well as the restoration of an equal amount of contribution room in the TFSA in the year following the year of withdrawal the ability to withdraw funds saved in a TFSA and deposit them into an FHSA to receive a tax deduction as FHSA room becomes available Prospective first-time home buyers should review the details of each plan to determine how to make the most of them to boost their savings. Budget 2022 also included other housing related incentives including the introduction of the new Multigenerational Home Renovation Tax Credit and doubling of both the First-Time Home Buyers’ Tax Credit and Home Accessibility Tax Credit. The proposed legislation for these two measures has also been included in Bill C-32. The government aims to make FHSAs available to individuals after March 2023, but at the time of writing this blog, the enabling legislation has not been enacted. Since the rules are still in draft form, any decisions on how best to save for the purchase on a home should be delayed if possible until the final rules have been enacted.Article By: Bruce Ball, FCPA, FCA, CFP November 21, 2022https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2022/november/faqs-tax-free-first-home-savings-account

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