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Canada closes tax loopholes to cool housing market
[OTTAWA] Canada announced new rules Monday to fight real estate speculation by foreigners blamed for driving up housing prices in two of its largest cities.
The government is amending the tax code to "close tax loopholes and improve tax compliance" with regard to an exemption from a capital gains tax, Finance Minister Bill Morneau told a press conference.
The move means foreign investors - just like Canadians - will have to pay a 50 per cent tax on profits from the sale of a home in Canada unless they actually lived in it and declared it to be their primary residence.
Until now, many foreign buyers managed to get around this tax.
"We will ensure that the principal residence exemption is available only to Canadian residents, and that families are able to designate only one property as the family's principal residence for any given year, as intended," Mr Morneau said.
The measure is among a series of new mortgage and tax rules unveiled by the Liberal government and its Tory predecessor in recent years in an effort to cool hot housing markets in Toronto and Vancouver.
According to their respective real estate boards, Vancouver prices climbed 31 per cent in the 12 months ending August 31, while Toronto prices rose 17 per cent.
In May, the average price for a detached single-family house in Vancouver topped C$1.5 million (S$1.6 million) for the first time. The city reacted by imposing a 15 per cent sales tax on properties sold to foreign buyers to try to prevent a housing bubble.
Mr Morneau also announced, effective October 17, new stress tests by lenders for all new insured mortgages, and tougher loan eligibility criteria for mortgages.
The government has also begun talks with Canada's banks about assuming more of the risk of default in mortgage loans, which are currently insured by taxpayers.