The Canadian Mortgage Broker Magazine - Summer 2024

DIGITAL DATA PROTECTING YOUR

Expert tips to safeguard information entrusted to your brokerage p.10

+

MEN’S MENTAL HEALTH

The best way to help is to start a conversation p.26

STEPS AND STRATEGIES

How to achieve FINTRAC compliance p.38

B.C. RESIDENTIAL PROPERTY SALES

Implications of the home ‘Flipping Tax’ p.30

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THE POWER OF WORDS

LISA GORDON

Expert

What

What property owners need to know BY TONY MAGRE, ALYSHA VISRAM AND JOHN GRAHAM

How to effectively achieve

RAY BASI

Key

LENDER’S

BY JAMES R.G. COOK

THE CANADIAN MORTGAGE BROKERS ASSOCIATION

DIRECTORS

Jim DeCoste (CMBA-Atlantic)

Deb White (CMBA-BC)

Taylor Lewis (CMBA-Ontario)

EXECUTIVE DIRECTOR

Carla Giles

CMBA - ATLANTIC

Mortgage Brokers Association of Atlantic Canada

12 M - 7095 Chebucto Road, Halifax, NS B3L 0A1

CMBA - BC

Mortgage Brokers Association of British Columbia 2025 Willingdon Ave, Suite 900, Burnaby, BC, V5C 0J3

CMBA - ONTARIO

Independent Mortgage Brokers Association of Ontario 7 - 40 Winges Road, Woodbridge, ON L4L 6B2

CMBA - QUEBEC L'Association des courtiers hypothecaires du Québec

5855 Taschereau #202, Brossard, QC J4Z 1A5

CANADIAN MORTGAGE BROKER magazine is produced by the Canadian Mortgage Brokers Association (CMBA National)

EDITOR

Carla Giles

STAFF WRITER

Ray Basi

MANAGING

EDITOR

Kathleen Freimond

ART DIRECTOR

Scott Laing

BILLING AND SALES

Debra Hiller

CONTRIBUTORS

Ray Basi

CMHC

IMAGES Adobe iStock VOLUME 9 ISSUE 3

James R.G. Cook

Carla Giles

Lisa Gordon

John Graham

Tony Magre

Rob Mark

Alysha Visram

CANADIAN MORTGAGE BROKER © All rights reserved. The views expressed in CANADIAN MORTGAGE BROKER are those of the respective contributors and are not necessarily those of the publisher or staff.

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SHAPING THE FUTURE

Collaboration and adaptability are crucial in a changing economic, regulatory and technological environment

BY CARLA GILES, MBA, CAE, CEO OF CMBA-BC, MBIBC, EXECUTIVE DIRECTOR, CMBA NATIONAL

EMBRACING INNOVATION IN CANADA'S MORTGAGE INDUSTRY

As key players in Canada's mortgage industry, we are undergoing a period of significant transition, driven by groundbreaking technologies and evolving regulations. Our mission to connect and empower mortgage brokers across the country has never been more critical. By embracing these innovations and working together, we can shape a future that benefits both our industry and the clients we serve.

HARNESSING TECHNOLOGICAL ADVANCEMENTS

Technological advancements are reshaping our industry in profound ways. Artificial intelligence (AI) and automation, once futuristic concepts, are now essential tools enhancing our operations. AI is revolutionizing how we market to clients, assess risk and tailor mortgage solutions. By analyzing vast amounts of data, AI enables us to make more accurate predictions and offer personalized recommendations to clients.

Automation is streamlining the mortgage process, handling routine tasks such as document verification process and compliance checks with greater speed and accuracy. This efficiency frees up valuable time for brokers to focus on what truly matters – building a solid client base and closing more deals. Tools like chatbots and virtual assistants are improving client interactions by offering instant responses and personalized support, ensuring expectations are met in an increasingly digital world.

These advancements are applied to digital platforms, mobile apps, and online mortgage applications, all designed to streamline operations and enhance the customer experience.

... driving change requires us to challenge traditional methods and embrace new ideas. By fostering a culture of adaptability, we can support our teams become more resilient and embrace innovation to better serve our clients.

However, as we embrace new technologies that digitize processes and interactions, we must also address the associated risks. This new environment requires more education, training, and risk mitigation strategies to protect our industry from cyber attacks and data breaches. Implementing robust cybersecurity measures and continuously updating our practices is crucial to stay ahead of potential threats.

NAVIGATING REGULATORY REALITIES TOGETHER

The mortgage industry is evolving due to changes in the regulatory environment at both provincial and federal levels. New legislation governing mortgage brokers and services in B.C., new compliance requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and laws addressing the housing crisis are reshaping the market and requiring the industry to adapt to better serve clients. For example, as of October 11, 2024, mortgage brokers must comply with the

Financial Transactions and Reports Analysis Centre of Canada’s (FINTRAC) reporting requirements. They need to implement a compliance program, report certain transactions to FINTRAC, keep required records, practice ‘know your client’ protocols, and apply ministerial directives. These changes necessitate governance, compliance and operational adjustments for brokerages and brokers.

Regulatory changes and policies aimed at addressing the housing crisis can lead to unintended consequences if diverse perspectives are not considered. Effective policymaking requires integrating multiple viewpoints to ensure regulations meet their goals without creating additional challenges. By engaging with regulators and sharing insights, mortgage brokers help shape balanced policies that enhance the industry and support longterm housing solutions for Canadians.

Engaging and collaborating with key stakeholders across various sectors allows us to identify potential pitfalls and address them together. This proactive approach ensures we create solutions that foster a healthy and sustainable housing market, rather than merely reacting to challenges. Our commitment to collaboration and advocacy is crucial for successfully navigating these regulatory realities.

LEADING WITH A COLLABORATIVE APPROACH

Effective leadership in this evolving landscape means fostering a culture of collaboration and adaptability. As leaders, we must articulate a clear vision that aligns with the changing economic, regulatory, and technological environment. This vision should guide our strategic goals and drive innovation while meeting the needs of our clients.

Empowering our teams is equally crucial. By supporting ongoing learning and development, we ensure that our teams are equipped to handle new technologies and navigate regulatory changes effectively. A collaborative environment that encourages professional growth allows us to collectively adapt and succeed.

However, driving change requires us to challenge traditional methods and embrace new ideas. By fostering a culture of adaptability, we can support our teams become more resilient and embrace innovation to better serve our clients.

COMMITMENT TO WELL-BEING

Having access to a support system is key to adapting to these changes. As leaders, we are dedicated to providing resources on regulatory updates, technological trends, and strategic advice. Equally important is realizing the importance of holistic well-being. Recognizing the intrinsic link between mental health and professional success, can help us better support the wellbeing of our communities.

To be truly effective, we must remain grounded and stay in touch with the people we serve – our teams, our clients. Understanding their needs, concerns and aspirations is fundamental to providing the best possible service. This connection helps us tailor our strategies and solutions to meet their evolving needs, ensuring we remain relevant and impactful.

By maintaining this focus on connection, well-being, and client needs, we create a foundation for a resilient and responsive industry. Our commitment to continuous learning and holistic care enables us to adapt and thrive amid the challenges and opportunities that lie ahead.

PROTECTING YOUR DIGITAL INFORMATION

Expert tips for safeguarding the valuable data entrusted to your brokerage BY

LISA GORDON

ersonal information has become a highly-prized commodity. According to RBC, the “cybercrime economy thrives on stealing personal data,” with the global annual cost of these crimes expected to reach US$9 trillion this year. Thieves and scammers are hunting for names, dates of birth, employment particulars and banking details – just the sort of information mortgage brokers collect every day.

Protecting this sensitive data is paramount for businesses of all sizes across all industries; the mortgage business is not immune to devastating cyber attacks.

To find out more about cybercrime and its impact on our sector, Canadian Mortgage Broker spoke with Rob Mark, co-founder and chief technology officer at BVigilant, a cybersecurity and technology operations company. With 16 years of IT experience, Mark has been at the forefront of the fight against the evolution of cybercrime. Here, he shares insights on this ever-growing global concern and, most importantly, tips to protect yourself and your brokerage from targeted attacks.

CYBERCRIME AND THE MORTGAGE INDUSTRY

ccording to a survey by Statistics Canada, 18 per cent of Canadian businesses were affected by some sort of cybersecurity incident in 2021, with attacks growing more prevalent as the size of companies increased. That year, businesses spent $9.7 billion to detect or prevent these incidents and avoid the associated downtime.

In many cases, attackers are hoping to access sensitive personal data, and Mark said ransom and identity theft are the most common forms of cyberattacks in the mortgage world.

“This can come from an attack designed to ransom you, or identity theft due to client information,” said Mark, adding that brokers are attractive targets for those looking to steal identities in order to take out false loans. Access to broker information often leads to access to client information.

“It’s much more cost effective for them to breach one account to get 500 people's personal information; that is enough to commit identity fraud on all those people.”

Attacks can be generic or targeted. “Phishing is where they send malicious links to try to steal credentials, whereas spear phishing is the same thing but targeted towards your industry and your business.” Mark said scammers might even check a broker’s website, looking for partners or connected lenders, so they can send a message that looks legitimate.

“The golden rule is that it is always about money; they are looking for the easiest and most efficient way to get the most money possible out of you.”

In many cases, Mark said a broker’s information is obtained via an attack on another large service, such as a healthcare service or mobile phone data breach. Hackers search for business email addresses and then those people become a target. “They may have a password from that breach that may also be used in a different place, allowing them to gain access.”

CYBERCRIME ON THE RISE

ccording to Statista, the global indicator ‘Estimated Cost of Cybercrime’ is expected to rise to an astonishing US$15.63 trillion by 2029. Incidents are skyrocketing as perpetrators become more adept, in some cases even selling the tools needed to launch a cyber attack.

“What we have seen evolve the most is the volume of attacks and the sophistication of attacks,” said Mark, adding that the days of a lone hacker sitting in his basement, face shadowed by a hoodie and sunglasses, are long gone. Now, technology has made cybercrime an attractive venture for well-funded criminal organizations.

“The golden rule is that it is always about money; they are looking for the easiest and most efficient way to get the most money possible out of you.

If you won’t pay, the first thing they do is let everyone know they hacked you, and start releasing client information to prove they hacked you.

– Rob Mark, co-founder and chief technology officer, BVigilant

In fact, there are companies that will build the necessary tools – a spear phishing kit, for example – and sell them to the highest bidder.

“They can even sign up for a monthly phishing subscription plan that is literally designed to target and hack people.”

Although these types of programs are illegal in Canada, the United States, and most modern allied countries, that is not the case in other parts of the world, said Mark.

“Most of the attacks we see are coming from Russia, China, Korea, India, Pakistan and countries that do not really have a (relevant) legal system in place,” he said, adding that the most common breach brokers should be concerned about is a business email compromise. Since brokers use their email for everything, their accounts are prime targets for hackers.

If they are breached, companies are pretty much at the mercy of the hackers.

“If you won’t pay, the first thing they do is let everyone know they hacked you, and start releasing client information to prove they hacked you.”

HOW TO ASSESS AND MITIGATE YOUR CYBERSECURITY RISK

ark has worked with mortgage brokers for almost 15 years, helping them mitigate the risk of cyberattacks. He said the first thing industry professionals should do is identify all the critical data they hold. This would include, but is not limited to, client information, information related to deals funded, and HR and payroll details, if applicable.

His company, BVigilant, offers a free risk assessment tool based on Center for Internet Security (CIS) controls. The CIS describes these critical security controls as a prescriptive, prioritized and simplified set of best practices that can be used to strengthen a company’s cybersecurity posture.

Mark recommends that brokers find an IT company to assist them with cybersecurity.

“Most of the time, I suggest people find a partner to help focus their efforts on securing those locations of risk,” he said, adding that an IT security specialist can help brokers assess vulnerability through a process based on CIS controls and lists. When asked about the questions an IT expert might ask, Mark responded: “Do you know if you have an incident response plan? Do you know if you have a backup solution? Which one do you use? How frequently do you test it?”

Brokers can also turn to the Canadian Centre for Cyber Security (Cyber Centre) for helpful information. The Cyber Centre, operated by the Canadian government, is the national authority for communications security, offering information, advice and updates on cybercrime, tools and services.

“Cybersecurity is the means to protect your digital data footprint,” explained Mark, adding that it doesn’t typically take a complete rework of what is already in place, but more of an adaptation to existing standards. “A good partner will align to the framework that already exists.”

CIS controls incorporate different levels of a small business-friendly platform, he explained. “You only have to work towards Level 1 initially, but you could go further and get even better.”

Another option is the National Institute of Standards and Technology (NIST), a division of the U.S. Department of Commerce, which develops standards, guidelines and best practices.

“NIST is a widely recognized standard mainly aligned with bigger firms,” Mark offered. “And then here in Canada, we have the Canadian Centre for Cyber Security baseline standards.”

Mark said a broker or their IT partner will pick the standard they are aligning to and then work towards fulfillment of that entire standard. It is not something that will happen overnight, but it will give a very clear and concise roadmap on how to secure a business.

“We start with the most critical aspects first and then tick the boxes until we are all the way there.”

REGULATORY COMPLIANCE

n Canada, the Personal Information Protection and Electronic Documents Act (PIPEDA) is the national standard governing the collection, use and disclosure of personal information. Provincially regulated private sector organizations in Alberta and British Columbia fall under the Personal Information Protection Act (PIPA).

“There is very little difference between PIPEDA and PIPA, but you do have to comply with your version,” said Mark, adding that companies must protect their data commensurate to its sensitivity. Generally speaking, he said that the data a broker holds is considered to be of highest sensitivity, not unlike that of health and personal identity data. Because of the regulatory requirements, Mark feels a broker is best served by aligning with a partner that has broker experience.

Depending on a company’s region and regulations, a breach can be devastating – both financially and to reputation.

“The scariest thought that I think resonates with most business owners is that after a breach, you generally have to notify all your clients that the breach occurred.”

Mark said the thought of writing a letter to clients explaining the breach in detail is enough to make owners want to avoid the exercise at all costs. He has helped companies go through the process, and it’s both daunting and deflating.

Any regulatory repercussions from a breach are determined by what prior measures a company employed to protect its data, according to Mark. He feels a fine or restrictions are much more likely if the company was deemed negligent in protecting clients’ personal information.

“If you’re making an effort and a breach did happen to slip through, you are less likely to receive any fines or restrictions.”

BEST PRACTICES

ark urges brokers to be proactive and not reactive when it comes to cybersecurity. The cost of putting the right measures in place is minor compared to the cost of a breach. Insurance may help with some of the costs, and insurance companies are great, but they cannot repair your reputation.

No broker wants to have to pay a ransom or send an email to clients letting them know their personal information has been breached. Taking steps today to protect the data entrusted to your company will pay dividends in the future – plus, you’ll sleep better right away.

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THE CYBERSECURITY ICEBERG

The need for several layers of protection

BY ROB MARK, CO-FOUNDER AND CHIEF TECHNOLOGY OFFICER AT BVIGILANT

our business’s cybersecurity plan is a bit like an iceberg; there’s a small part at the top that can be addressed without much sophistication. There are plenty of marketready products to use, but if you really want to take cybersecurity seriously, the vast majority of what will actually protect you and get you back up and running quickly after a breach will likely need a professional to set up and monitor.

Here are some quick wins that every broker should look to implement immediately. They are simple, cost-effective and improve things dramatically from a security perspective.

MULTI-FACTOR AUTHENTICATION (MFA)

This is the technical name for those text message codes you get when you log in to your bank. MFA should be enabled everywhere possible. An authentication app is the best option, but an SMS/text message or even a voice call is better than nothing. Secure any account possible with MFA as soon as possible.

PASSWORD MANAGER

I’m sure you’ve been told before to use unique passwords everywhere, but who really has room in their head for all their current deals, family obligations and 70,000 unique passwords? So, we tend to get lazy; we use a slight variation of the same password or just the same password everywhere. A password manager,

when used properly, will allow you to wipe all those old passwords from your brain and only remember one! You log in to the password manager with your one complex, highly secure password, and the password manager remembers all your other passwords for you and fills in the logins on your behalf.

CONTRACTS AND STANDARD OPERATING PROCEDURES

Everyone, especially those with support staff, should have some IT/security language in their employment contracts and standard operating procedures. These include a work-from-home policy, an acceptable use of technology policy, and a ‘fire drill’ plan for when/ if a breach occurs or is suspected. Make sure you (or your team) aren’t confused and lost when something major happens. They need to know who to call, at what number, what information to share, and more!

Most of the rest can be handled by a good security partner who will do the heavy lifting for you and your team. Just keeping security as a topic of discussion within your business goes a long way to keeping people on their toes. But a good security partner will implement several layers of protection from Security Awareness Training to Managed Detection and Response and much more.

One of the most common tactics we see hackers use to trick people is to create a sense of urgency. Brokers get that a lot with the last-minute subject removal issues and panic financing emergencies. Keeping security top of mind helps to combat those tactics that are aimed at having you make a mistake under pressure.

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“

If

they don’t need to hear it, I won’t say it, but if they need to hear it, I will say it

With his mortgage career spanning more than three decades, broker Ron Butler takes pride in telling it like it is BY LISA GORDON

BLUNT AND

Ron Butler sits in his studio, the mic hot and the camera ready to record. He prepares to deliver a noholds-barred take on the mortgage industry during another episode of the Angry Mortgage Podcast

“I started on Twitter about five years ago and the podcast derived from requests,” he explains, adding that office staff and others in the industry encouraged him to start a podcast due to the success of his Twitter feed.

Butler is one of the founders of Butler Mortgage and the firm’s principal broker for Ontario, working out of Toronto. Additional offices are located throughout Ontario, Alberta, and Butler’s home province of British Columbia – he was born and raised in Vancouver.

From there, he moved to Edmonton, where he met his wife while working in the finance industry. After living in a few provinces, Butler settled in Ontario about 38 years ago.

When it comes to his career as a mortgage broker, Butler is candid.

“I thought, just give it a try,” he said, explaining that after he sold his small business, a former friend recommended he try mortgage brokering. More than 30 years have passed since Butler decided to “give it a try,” and the 67-year-old has no plans to retire.

“My youngest son, Will, works with me, and he will take over the business if I can’t do it anymore.”

Butler likens longevity in the mortgage industry to that of senior partners in large law firms. He noted that, like lawyers, mortgage brokers do not have a mandatory retirement age or defined benefit pension plan.

“You will see lawyers in their 80s managing a few files and working as much as they like,” he said, adding that he appreciates the option to work until he decides it's time to retire.

Butler’s transition to mortgage brokering was somewhat eased by the five years he spent in finance. He believes that understanding corporate structure and sales processes in finance helped him with prospecting leads and closing deals.

“Understanding how many prospects you need to convert to leads, leads to applications, and applications to funded sales is a great starting point,” he said.

Butler noted that running a brokerage has many challenges: “This business is about an

UPFRONT

infinite number of deadlines; it never stops.”

Unlike commissioned brokerages, he has salaried employees, which Butler says puts more onus on the managers and operators to “show up every day to move the needle on the business.”

The colourfully upfront broker aligns himself with the aphorism of famed German philosopher Friedrich Nietzsche: “Whatever doesn’t kill you makes you stronger.”

Butler feels one must be resilient and aggressive in business to keep things moving forward. “Even though my podcasts, for instance, aren’t always overly angry, they are –every single time – very, very blunt.

“If they don’t need to hear it, I won’t say it, but if they need to hear it, I will say it,” said Butler when asked if he has always been so upfront with people. He understands that there is a time and place for everything, adding that he has been on radio, television, and quoted in major newspapers, along with

testifying at parliamentary committees.

“In the right environment, I know how to behave,” he said with a laugh.

Butler says media exposure, especially on social media, is crucial for a mortgage professional. His brokerage generates a certain amount of business from social media, and he recommends that brokers who do not have a presence give it a try.

“Why are 28-year-olds and 32-yearolds not doing it, and a 67-year-old man is?” he asked.

An avid reader, Butler has a thirst for information and acknowledges that it takes time to become proficient at social media –but the payoff is worth it.

“The results won’t be instant; it will take a couple of years,” he said. Within that time frame, a broker will be constantly learning and educating themselves to eventually see results. “You have to hone your craft. Read a lot. Write a lot. That’s how you get better.”

He said that although he spent a little money setting up a studio for the podcasts, most of the social media he uses is very low cost. A broker can start small and doesn’t necessarily need a podcast. Posting videos on platforms like X (formerly Twitter), TikTok, and LinkedIn can be very effective.

“We spend virtually nothing on it; it’s practically free,” he said.

When asked for his predictions on the future of the industry, Butler said he believes changes are coming to income verification laws. He feels they will eventually be linked to the Canada Revenue Agency (CRA), impacting the real estate industry as a whole.

“Linkage to the CRA will bring income document fraud to an end,” he predicted.

With no plans to retire anytime soon, the library of Angry Mortgage Podcasts will continue to grow. As for Ron Butler, he will always relish the opportunity to offer mortgage advice in a straightforward, no-bull, authentic way.

GAINS

What mortgage brokers need to know

HIKE CAPITAL TAX

BY RAY BASI, J.D., LL.B., DIRECTOR OF EDUCATION FOR CMBA-BC AND MBIBC

OVERVIEW

This article explains when capital gains tax applies, the key changes to the tax, and some possible impacts of the change on the housing and mortgage markets.

The federal government has increased the capital gains tax inclusion rate from 50 per cent to 66.67 per cent for corporations and trusts. For individuals, the inclusion rate will remain at 50 per cent in relation to the first $250,000 of a capital gain and will be increased to 66.67 per cent in relation to that part of a gain more than that amount. Accordingly, capital gains realized after June 25, 2024, will potentially attract more tax. Recognizing the related issues can better equip a mortgage broker to more fully understand their client’s financial circumstances and needs.

WHEN DOES THE TAX APPLY?

The tax applies to capital property. Capital property is an asset held primarily for investment, not for regular business operations or consumption. Such assets are meant to generate long-term value appreciation or income. Real estate, secondary investment properties and cottages can be considered capital property.

A capital gain occurs when you sell or are considered to have sold a capital property for more than its adjusted cost base. A property’s adjusted cost base is the amount it cost you to acquire the property (including purchase price, commissions, legal fees and transfer tax costs) plus any amounts you paid to make improvements to increase the value of the property.

Capital gains can also be triggered by events such as exchanging properties; gifting property (other than cash); converting shares or other securities; settling or cancelling a debt; transferring property to a trust; expropriation, theft or destruction of property; expiry of an option to buy or sell; redeeming or cancelling shares or securities; changing the use of the property; leaving Canada; and the death of the property owner.

Of particular relevance is that if a mortgage lender repossesses (that is forecloses upon) real estate because the borrower breached the mortgage (such as by failing to make payments required under the mortgage terms), the mortgage lender is, for capital gains purposes, considered to have purchased the property. The mortgage lender’s capital gain does not occur at the time possession is taken but rather when the mortgage lender sells the property. In such circumstances, the mortgage borrower is considered to have sold the property. Depending on the amount the mortgage borrower owed at the time repossession was taken, the borrower also may have a capital gain or a capital loss.

Not all of a capital gain is subject to being taxed; only the portion of the gain specified by tax law as being the inclusion rate is subject to tax. This inclusion rate portion is added as income to your other (such as employment) income for purposes of calculating the amount of tax payable.

SOME KEY RULES AND EXEMPTIONS

PRINCIPAL RESIDENCE EXEMPTION: Capital gains resulting from the sale of a principal residence are not taxable for the time or times the property was the principal residence of the owner.

QUALIFIED FARM OR FISHING PROPERTY OR QUALIFIED SMALL BUSINESS CORPORATION SHARES: There is a lifetime capital gains exemption on gains from selling qualified farm or fishing property or small business corporation shares. The farm or fishing property exemption applies to certain properties (such as real estate or fishing vessels) owned by you, your spouse or common-law partner, or by a family farm or fishing partnership. The small business corporation shares exemptions apply to Canadian-controlled private corporations where 90 per cent or more of the assets’ value is used in an active business primarily in Canada, are shares or debts of connected small business corporations, or a combination of these.

When you sell qualified property or shares, you must report any capital gain or loss on your income tax return. You may be eligible for a lifetime capital gains deduction if you have a gain. As of June 25, 2024, the lifetime capital gains exemption limit increases from $1,016,836 to $1.25 million for eligible gains. Accordingly, the maximum lifetime deduction increased from $508,418 to $833,333, reflecting the increase in the inclusion rate from 50 per cent to 66.67 per cent.

INHERITED PROPERTY: An inherited property, such as a family cottage, can be subject to the tax if it was not the owner’s primary residence when they died.

INDIVIDUAL AND CORPORATE RATES:

Individuals have a $250,000 annual exemption before the 66.67 per cent inclusion rate applies; the rate of 50 per cent continues to apply for gains of up to $250,000. Corporations and trusts do not have this exemption.

REALIZATION OF GAINS: Capital gains are realized upon legal transfer of property. Taxpayers are not permitted to elect to realize a gain or loss without there being an actual transfer.

CAPITAL GAINS AVERAGING: Individuals are not entitled to average capital gains over multiple years to stay under the $250,000 threshold.

SPLITTING EXEMPTIONS: Individuals are not permitted to share their $250,000 exemption with corporations they own.

UNIFORM INCLUSION RATE: The 66.67 per cent inclusion rate applies uniformly across all sectors without specific exemptions.

TIME-BASED DISTINCTIONS: No special rules apply based on how long a capital was owned or other criteria; the inclusion rate applies to all capital gains equally.

SOME KEY CHANGES

The key change is that the capital gains inclusion rate is being increased. In other words, the portion of the gain that is to be subject to being taxed is being increased. Corporations and trusts will be required to include 66.67 per cent of the entire capital gain as part of their income; this is an increase to the prior 50 per cent requirement. Individuals too will be required to include 66.67 per cent of the gain as part of their income; however, they need to include only 50 per cent of the first $250,000 of the gain as income.

While the change does represent an increase in the inclusion rate, Canada has had the same and greater rates in the past. Prior to 1972, there was no capital gains tax. From 1972 to 1987, the rate was 50 per cent; in 1988, it was increased to 66.67 per cent; in 1990, it was increased to 75 per cent; from February 28 to October 17, 2000, it was 66.67 per cent; from October 17, 2000, to June 24, 2024, it was 50 per cent; and from June 25, 2024, onward, it is 66.67 per cent (with the exemption that

an individual’s first $250,000 of capital gain is subject to only a 50 per cent inclusion rate). Note that when a property is held for a period of time where the rate has changed one or more times, the taxable gain is calculated by applying the then-current inclusion rate to the various time periods. That calculation is more involved than this article intends to cover, and you may want to have your financial advisor help with the calculation in specific circumstances.

WHY THE INCREASE?

The government’s position is that the changes make for a fairer tax system by making wealthy persons pay more of their share of taxes. The government projects that the change will bring in $19.4 billion over five years, with such funds helping to fund its housing initiatives.

CALCULATING THE TAX

Various exemptions can apply in specific circumstances. The following is meant to be a generic example. You should obtain advice and make a more precise determination in particular circumstances.

Under the new inclusion rate, an individual would be required to include 66.67 per cent of the capital gain exceeding $250,000 as taxable income but only 50 per cent of the first $250,000. Here is the breakdown for a capital gain of $1 million:

50 per cent of the first $250,000

66.67 per cent of the remaining $750,000

Total taxable capital gain

$125,000

$500,025

$625,025

Under the previous 50 per cent inclusion rate, the individual would have had a total taxable capital gain of $500,000.

The breakdown for a corporation in the same situation would be as follows:

66.67 per cent of the $1 million

Total taxable capital gain

$666,670

$666,670

The individual would include the total taxable gain of $625,025 as income in their income

tax return. The corporation would likewise include $666,670. Under the previous 50 per cent inclusion rate, both the individual and corporation would have had a total taxable capital gain of $500,000 to include as income.

POTENTIAL IMPACTS

Capital gains tax generally and the increased inclusion rate specifically can potentially impact both the real estate and mortgage markets. It remains to be seen which of the following possible impacts occur and to what degree they occur. Of course, impacts will be contributed to by other policy changes as well, such as B.C.’s ‘flipping’ tax, which takes effect on January 1, 2025, and applies to profits from the sale of B.C. residential property held for less than two years. The rate of the ‘flipping’ tax starts at 20 per cent for flips made in the first year of ownership and gradually declines until the rate is zero at the end of the second year. There are exemptions from the tax applying if the sale of the property “can reasonably be considered” to be related to circumstances listed in the legislation including divorce, death and involuntary job loss.

SECONDARY PROPERTY SELLING: In places like B.C., where real estate values have surged, many taxpayers will realize significant taxable capital gains in relation to the sale of their non-primary residence homes. This can translate into a larger amount being paid for taxes and less being left over for the taxpayer. This can be particularly problematic for the retired taxpayer who was counting on the sale of the accumulated properties to fund their retirement.

IMPACT ON ESTATES AND COTTAGES:

Inheriting property, like cottages, can trigger capital gains tax where the inherited property was not the owner’s primary residence. This can significantly reduce the net value of the estate.

REAL ESTATE DEVELOPMENT:

The inclusion rate change applies to secondary homes and recreational properties. This can make it more difficult for developers to assemble land for development. Challenges in assembling land for development in cities like Vancouver, where development often requires buying

from long-term owners, may be increased. The greater tax burden can make owners less willing to sell, and this can have the effect of raising the cost of land and, subsequently, housing.

REDUCING RENTAL SUPPLY: Higher capital gains inclusion rates and resulting taxes can reduce the number of rental units as developers and investors face higher costs. This could lower housing supply, affecting rental markets.

SUPPRESSING INVESTMENT:

Developers and investors who face higher taxes on gains may see reduced returns. This can lead to less investment in new projects and potentially drive money to other markets.

RENOVATORS: Buyers who renovate, rent and refinance properties could find the process of doing so less attractive, due to higher taxation, and choose not to carry on business to the same degree or at all. This can reduce the quality of housing available.

WHAT TO DO IF YOU HAVE A CAPITAL GAIN?

Tax law is full of complex legislation, regulations and rules. The area of capital gains tax is no less complex. Once you identify a capital gains issue, you might want to send your client out for qualified professional advice to explore ways to reduce or manage the application of the tax.

For example, if your client plans to refinance a non-primary home and pass it to the next generation, they might consider selling or gifting portions of the property annually. This may help them repeatedly use the $250,000 annual exemption. However, this strategy is complex, involving annual tax and legal advisory costs, as well as potential land transfer taxes. These factors should be compared to the additional tax cost due to the 66.67 per cent inclusion rate. Co-owning property with others, especially family members, has its own implications and should be discussed with tax and legal advisors. You the mortgage broker

might not have the answers, but you may recognize the issue and assist your client in obtaining appropriate professional advice.

TAKEAWAYS

Mortgage brokers are regularly engaged in determining clients’ financial circumstances in relation to assess their ability to obtaining a desired or needed mortgage. Being aware of capital gains implications on sales of recreation or other non-residential property makes the broker that much more equipped in advising their client. A broker of course need not be as versed in the topic to the degree of an accountant or other tax advisor, but it certainly would be helpful to be able to identify the issues and guide the client in obtaining such advice as needed to arrange their mortgage and finances.

This article is not intended as legal advice. You are advised to obtain legal advice in specific instances.

A HOUSE DIVIDED

Resolving financial entanglements and the complexities of co-ownership

BY RAY BASI, J.D., LL.B., DIRECTOR OF EDUCATION FOR CMBA-BC AND MBIBC

Often people are registered on title to real estate along with other registered owners. What happens when one or more of the owners want the property sold, their shares of sale proceeds, and to go their own way? Punjani v Dhanani, 2024 BCSC 1157 (CanLII) provides guidance.

HOUSE

BACKGROUND

The Punjani case concerns a dispute between a mother and her only son regarding their joint tenancy of a property located in Surrey, B.C. The central issue in the case is whether the Court should order the sale of the property, as requested by the son, or deny it, as argued by the mother.

The mother is a 73-year-old widow with various health problems, including osteoarthritis, degenerative disc disease, anxiety and depression. The son’s father died in April 1992; the mother remarried and her second husband passed away in May 2023. The mother and her only son purchased the subject property on December 22, 2015, for $675,000. The 2023 BC Assessment for the property shows a value of $1,676,000. They are both registered as owners of the property and are co-mortgagors on a mortgage registered against title.

LEGAL AND FINANCIAL CONTRIBUTIONS

According to the son, he provided the down payment of $132,000 for the property, covered the property purchase tax of $11,200, and paid closing adjustments amounting to $3,800. He claims the mother was included as a joint tenant primarily for estate planning and tax reduction purposes, intending that she and her late husband would reside at the property and claim it as their principal residence.

Just prior to the purchase of the property, on July 6, 2015, approximately $400,000 was realized from the sale of the home in Vancouver where the mother and her husband previously resided. That property too had been registered in the name of the son and his mother. The mother alleges that those funds were intended as a loan to her son to purchase two other properties; however, no formal documentation exists to support this claim, and no repayments have been made by the son. The son’s two properties have since been sold, and the mother alleges that her $400,000 loan was not repaid.

LEGAL FRAMEWORK

The case is governed by B.C.’s Partition of Property Act, which allows joint tenants to seek the partition or sale of property if they cannot agree on its management or disposition. The Act provides that if an owner or owners owning at least 50 per cent of the interest in a property request that the property be sold and the proceeds distributed, the Court must order the sale unless there is a ‘good reason’ to not do so.

The B.C. Court of Appeal in a previous case said that the Court has “broad and unfettered” discretion to do justice between the parties. The non-exhaustive list of good reasons to refuse partition and sale include serious hardship to the other party, lack of good faith, vexatiousness or maliciousness.

legal ease

ARGUMENTS AND POSITIONS

The son argues that he has made substantial financial contributions to the property, including $239,271.11 for mortgage payments, $24,000 for property taxes, $18,000 for insurance premiums, $4,200 for utility bills, $17,000 for garbage and water payments, and $10,000 for maintenance and repairs. He is financially strained and unable to continue covering the property’s expenses. He wants the property sold.

The mother disputes that her son has any true ownership in the property notwithstanding him being registered with her on title. She argues that the funds from the Vancouver property sale were a loan to the son, not a gift, and that she and her late husband agreed to this arrangement to assist the son in purchasing the two other properties.

The mother seeks to explain away her son’s substantial expenditures on the property by alleging that the respondent agreed to pay these expenses because she and her husband were senior citizens, and her husband was in poor health. She claims that she and her husband also put money into improving the property; the son obtained lines of credit secured against the property that she did not approve, and from which she saw no personal benefit; and the son has not needed to pay property taxes since 2021 because she was able to secure a deferment from the provincial government. The mother says that any “improvements” made by the son were not performed properly by licensed trades and that, in fact, it will take about $35,000 to put the property back into a proper state.

At the time of the dispute, the mother lived at the property with two friends and one of their sons. She also had tenants living in a basement suite. She has not herself paid any rent to the son, nor has she shared any rent received with her son.

Both parties acknowledged that neither could afford to cover the expenses to maintain the property alone. The son said it needs a new roof at a cost of $40,000 to maintain insurability.

The case highlights the importance of clear financial agreements and documentation in property transactions and the Court’s role in balancing the equities and hardships of involved parties when making decisions on partition or sale under the Partition of Property Act.

COURT’S ANALYSIS AND DECISION

The Court acknowledged the son’s right under the Act to have the property sold, unless the mother could demonstrate a ‘good reason’ why the sale should not proceed.

The Court reviewed the evidence presented by both parties, including financial records, property titles and witness testimony. It concluded that there was insufficient evidence of a binding agreement or trust that would entitle the mother to block the sale of the property. The mother’s claims regarding the nature of the funds from the sale of the Vancouver property and the quality of maintenance on the property were not substantiated with adequate proof.

The Court recognized the mother’s age, health issues and current residence at the property. It concluded that denying the sale would not alleviate her financial or personal hardships. Both parties lacked the resources or desire to maintain the property, making a sale necessary to resolve their financial entanglements and allow each to move forward independently.

OUTCOME

Based on the evidence presented and the legal framework applied, the Court granted the son’s application for the sale of the property. As the son and mother disagreed about their respective equity interests in the subject property, the proceeds of the sale were to be paid into Court pending resolution of any further disputes over ownership or entitlement.

The Punjani case underscores the complexities of co-ownership disputes and the application of statutory law to resolve property ownership conflicts. The case highlights the importance of clear financial agreements and documentation in property transactions and the Court’s role in balancing the equities and hardships of involved parties when making decisions on partition or sale under the Partition of Property Act.

This article is not intended as legal advice. You are advised to obtain legal advice in specific instances.

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How

THE POWER OF

Men often struggle with their mental health in silence – the best way to help them is by starting a simple conversation

BY LISA GORDON

In 2019, Statistics Canada reported that 1.6 million Canadian males aged 15 and up have seriously contemplated suicide at some point in their lives. In the U.S., the suicide rate among males was four times higher than females in 2021. While men are clearly struggling with mental health issues, women are more commonly diagnosed with depression and related disorders. Even when they do reach out for help, men’s needs are often overlooked or dismissed because of outdated societal perceptions. That’s why international keynote speaker Allan Kehler has a simple message for everyone: If you see someone struggling, say something.

Kehler delivered a powerful presentation to the mortgage industry during an MCAPsponsored webinar on June 28 this year at the end of Men’s Health Month.

“As men, we have some unique barriers because of society’s view regarding what it means to be ‘a man,’” Kehler. “We often try to suppress our emotions by stuffing everything inside, and we have a hard time raising our hand for help.”

While he said society is making positive strides in recognizing and treating depression and mental illness in men, the needle of change is still slow to move.

“In this fast-paced world, we often ignore human connection. I believe that we are living in the loneliest time, where we’re more connected than we’ve ever been – and yet we’re actually more disconnected. At the end of the day, every single person wants to be seen, heard, supported.”

Kehler knows this first-hand, having fought a battle against mental illness and addiction himself.

“I didn’t talk about my pain,” he said in a TEDx talk in April 2022. “The world was my stage – I always had a smile on my face. I was taught to be strong, independent, in control.”

OF WORDS

There is emotional release when you start to talk about that pain. We are now recognizing the power of one’s story, and I would argue that vulnerability equals strength.

– Allan Kehler

mental health

Like many men, Kehler turned to alcohol, gambling, and other selfdestructive behaviours. One day, a doctor gave him only a month to live if he didn’t change his ways. He joined support groups, surrounding himself with other men who were dealing with the same issues. He said opening up to those groups was the hardest thing he’s ever had to do. But when he finally did, there was a tremendous sense of relief, and recovery began to seem possible.

“Darkness begs to see the light of day – no man, no human, wants to live a life of internal agony,” said Kehler. “There is emotional release when you start to talk about that pain. We are now recognizing the power of one’s story, and I would argue that vulnerability equals strength.”

SIGNS OF A STRUGGLE

What are the signs that a man you know might be grappling with mental illness?

“Men often go to anger, while women often go to sadness,” noted Kehler. “However, many men were taught that it’s not OK to be sad, so they project their pain. And, while females have a greater tendency to turn towards food, men often resort to alcohol and substance use.

“Then, there could be changes in our usual patterns. Sometimes we leave breadcrumbs that others can pick up. For instance, if a man usually says, ‘I’m good’ but changes to ‘I’m OK,’ that could be a sign that things are really not OK.”

Kehler said it’s important to trust your intuition if you think someone might be struggling with their mental health.

“If you think someone has a problem, they likely do. We literally feel it in our guts. Denial is a more comfortable place to be, often because we don’t know what to say. But silence is not the answer.”

Kehler said that when he was struggling, he lashed out and blamed others.

“I was a very violent and aggressive person, but underneath it I was just really hurt. It takes a compassionate person to look beyond that.”

In fact, he said there is just one thing that needs to be said: “How are you doing today, [use their name]?”

“Ask with sincerity and then zip it. We have two ears and one mouth for a reason. You don’t have to be a trained counsellor to listen. Create a safe space for them to unload their feelings, and then just wait. Ninety-nine per cent of the time, when they are done talking, they will feel better. Why? Because emotions are energy. Unfortunately, a lot of men have never had that opportunity with someone they trust to speak openly and honestly.”

A lot of men may be just going through the motions, doing what needs to be done to provide, and they may not realize they are unhappy. I used to be like that –then I talked to someone and now I’m happy.”

– Lowell Harding, VP of broker relationships, Tango Financial

And what should you do after someone has opened up to you about their struggles?

Kehler said it’s simple: Validate their courage for sharing, direct them to professional resources, and then follow up.

Resources include the Canadian Mental Health Association, CAMH, the Suicide Crisis Helpline, the Canadian Men’s Health Foundation MindFit Toolkit, men’s suicide prevention program Buddy Up, and local centres specializing in domestic violence, sexual assault and culturalspecific resources.

“Companies can come up with one sheet of resources and post it online and in common areas,” suggested Kehler. “Men in general have a tiny window where we are sick and tired, and we are ready for a better life. That window is so small. So the more visible this stuff is, the better.”

When following up with someone you are concerned about, remember that they may not respond – but they will still appreciate your concern.

“When I was immersed in my addictions and mental illness, a lot of people would call and send emails, and then eventually it got quiet,” recalled Kehler. “It’s a lonely

day when you stop getting messages. I didn’t respond to 99 per cent of those messages, but I felt each and every one. Just because someone doesn’t respond, it doesn’t mean your words didn’t have a positive impact.”

MORTGAGES AND MENTAL HEALTH

While the mortgage industry may not be unique when it comes to mental health concerns, there are some distinctive stressors in the business.

“Often, you are dealing with clients who unload their own challenges,” pointed out Kehler. “How do we manage those heavy conversations? There is no faucet to turn off our emotions, no matter what is going on. As a professional, we have to wear a mask. So sometimes in this fast-paced world, we have to give ourselves a chance to slow down and check in with ourselves.”

Lowell Harding, VP of broker relationships at Tango Financial in Kelowna, B.C., had the idea to bring Kehler in to speak with mortgage brokers. He approached Lee-Ann McEllister, director of sales at MCAP, who loved the idea and organized the webinar.

“A lot of men may be just going through the motions, doing what needs to be done to provide, and they may not realize they are unhappy,” said Harding. “I used to be like that – then I talked to someone and now I’m happy.”

He pointed out that the role of a mortgage professional is essentially to help people.

“We see people at the most exciting time in their life when they’re purchasing their first house; and in the sad parts of their life, too, where they need help getting out. It can be an emotional roller coaster.”

Harding said he relieves workplace stress by hopping on his motorcycle and going for a long ride.

“But that’s not for everyone. The main thing is, just open up and talk to somebody about the stress you’re feeling. Don’t be afraid to speak your truth. Emotions aren’t a bad thing.”

MCAP’s Lee-Ann McEllister agreed that mortgage brokers can be subjected to a lot of pressure.

“I think we often forget how our industry creates stressors for everyone,” she said. “We’re dealing with 100 per cent commission, high performance expectations, and long working hours on evenings and weekends. It’s a role that requires multi-tasking, which leads to feeling overwhelmed. There is market volatility, and emotional labour managing client relationships as we balance demanding work with family obligations. And, the cherry on top is constant comparison with our colleagues.”

One of MCAP’s corporate values is respect for customers, employees and

I'm good

We all play a vital role in the support system for men. We must foster a culture of empathy and support that transcends gender barriers – we are all part of an amazing industry, and we can help one another.”

– Lee-Ann McEllister, Director of Sales, MCAP

their health, well-being and success –and McEllister would love to expand on that core value.

“I think mental health needs to be an ongoing conversation and I’d love to see our industry get to a place where all leaders are involved,” she said. “I’d like to see training being provided on how to recognize signs of mental health issues, and how to achieve a work/life balance instead of subscribing to the hustle and grind culture, which leads to burnout.”

Citing a study revealing that even when suicidal men seek professional care, those services often fall short of meeting their needs, McEllister said awareness programs and supportive environments must be cultivated across all industries.

“There is a role here for companies and associations when it comes to awareness, education and training. We need to provide those opportunities. Not everyone goes out and seeks help, it’s often at the bottom of their list – but if it was offered, they would show up.”

McEllister concluded by pointing out that attendance at MCAP’s recent

Allan Kehler webinar was evenly split between men and women –and that’s important.

“We all play a vital role in the support system for men. We must foster a culture of empathy and support that transcends gender barriers – we are all part of an amazing industry, and we can help one another.”

Concluded Kehler: “TSN broadcaster Michael Landsberg wrote the foreword for my book on men and mental health, and he shared that there is nothing contagious about mental illness. However, there is something contagious about sharing your story. I think the words ‘me too’ are the two most powerful words, because they allow for human connection. We need to have hard conversations about men and mental health, because hope is real and healing is possible.”

Did you miss Allan Kehler’s mortgage industry webinar? Contact your MCAP business development manager or broker relationship manager for a link to the recording.

B.C.’S HOME “FLIPPING TAX” WHAT

PROPERTY OWNERS NEED TO KNOW

BY TONY MAGRE, ALYSHA VISRAM AND JOHN GRAHAM

The recently concluded legislative session (and the last before the upcoming provincial election) saw continued efforts from the B.C. government to deliver on its “Homes for People” plan, which lays out various government actions and programs to address the persistent housing affordability problem in B.C. One such effort includes Bill 15 –Budget Measures Implementation (Residential Property (Short-Term Holding) Profit Tax) Act, 2024 (Act). Commonly referred to as the “flipping tax,” the Act will impose a tax on profits earned from the sale of residential properties that are sold (or flipped) within 730 days (or two years) of the initial acquisition.

WHO IS AFFECTED?

Beginning on January 1, 2025, property owners in British Columbia may be required to pay a tax on the income earned from the sale of residential property if sold within two years of its acquisition. Residential property includes:

n Any “housing unit” (meaning a self-contained unit for residential accommodation, excluding float and manufactured homes), together with the surrounding land, and

n Any land zoned all or in part for residential use that does not include a housing unit.

It is important to note that the tax will apply to pre-sale contracts (in addition to any other right of a person to acquire residential property, such as an option to purchase), so any assignment of a presale contract within two years following execution could be subject to the tax. The two-year period begins when the person (i) signs the presale contract with the developer, in the case of the original buyer, or (ii) takes assignment of the presale contract, in the case of any subsequent assignment. The acquisition date is when the presale contract was executed or assigned, so the clock does not reset when the transaction closes and the buyers move into their new home.

HOW IS THE TAX CALCULATED?

Total Tax Payable

The amount of tax payable depends on the total days the taxpayer held the property. If the taxpayer sells the property within 365 days of the initial acquisition, the tax is 20% of net income. If the taxpayer sells the property after 365 days, then the tax decreases on a sliding scale until no tax is payable, which is on the day that is 730 days from the initial acquisition of the property. Property owners who are subject to the tax must file a tax return within 90 days of the taxable transaction unless they qualify for an exemption.

Net Taxable Income

The total taxable income from any sale is determined by subtracting the taxpayer’s cost of acquiring and improving the property from the proceeds of disposition.

Acquisition costs include the total amount paid for residential property, plus typical purchase transaction expenses, such as legal, registration and inspection costs, and any GST paid on the initial acquisition. Taxpayers may also exclude the costs of any improvements that are of an “enduring nature,” such as replacing appliances and undertaking substantial renovations of a housing unit. The proceeds of disposition are the total proceeds received from the sale of residential property, less typical sale transaction expenses, such as survey, legal and broker costs.

Primary Residence Deduction

If a taxpayer holds the property for at least one year, and the property contains a housing unit that was the taxpayer’s primary residence

(defined as the place in which an individual resides longer than any other place) during such period, then the taxpayer may deduct up to C$20,000 from the total taxable income earned on the disposition of the residential property.

WHAT ARE THE EXEMPTIONS?

The Act contains exemptions based on various criteria. Key exemptions are:

n LIFE CIRCUMSTANCES: The tax may not apply where a sale of residential property results from certain life circumstances, including the death or serious illness of a family member, relocations for work or education, or changes in household membership such as the birth of a child, moving in with a partner, or the breakdown of a relationship.

n IDENTITY OF THE SELLER: The tax will not apply to certain sellers, including Indigenous Nations, registered charities, and various government entities.

n RELATED PERSONS: The tax may not apply if the property is transferred between “related persons,” which includes (i) certain related individuals (including by blood, marriage, common law or adoption), provided such individuals used the property for at least one year as their primary residence; (ii) various corporate affiliations, including corporations that are controlled by the same person, corporations and those who control such corporations, and new corporations resulting from amalgamation.

n COMMERCIAL USES: The tax will not apply if the seller used the residential property exclusively for a commercial purpose. If any part of the residential property was used primarily for a commercial purpose, then such part is deemed “commercial property,” and any associated net income is not taxable. While the Act excludes certain activities (including holding, renovating, or renting the residential property), it does not state what constitutes a “commercial purpose.” The Act contemplates regulations establishing the circumstances in which residential property may be considered used for a commercial purpose, but as of the date of this publication, no such regulations have been released.

n BUILDERS AND DEVELOPERS: The tax will not apply to builders or developers provided (i) they buy and sell property for development purposes and construct or place buildings on such property in the ordinary course of their business and (ii) the subject property was held for development purposes.

n RENOVATIONS AND NEW HOUSING UNITS: The tax will not apply to the sale of a property if: (i) there is a “substantial renovation” to a housing unit on the property (which includes renovations where the habitable area is at least doubled, or all or substantially all of the non-structural components are removed or replaced); (ii) the property contains a housing unit, and a new housing unit is created in addition to, or replacement of, the existing housing unit; or (iii) the property does not contain a housing unit (e.g., bare land), but a “building activity” has occurred (which includes clearing or excavating) during the time the person owned the property that relates to the development of a housing unit.

TAKEAWAYS

The flipping tax adds to a growing list of considerations for those transacting in B.C. real estate. While the flipping tax may undergo updates as the Act progresses towards expected legislative approval by 2025, the government has given consideration to ensuring the Act does not capture unintended targets. For example, some development activities may be exempt pursuant to the carveouts for developers, builders, and substantial renovations. In addition, certain non-arm’s length corporate transactions may not immediately trigger a tax liability, provided the entities involved are related parties. Further, commercial uses are exempt to ensure properties used for business activity do not incur a tax liability, but the Act contains vague language regarding what constitutes a commercial purpose.

In any case, the effects of the flipping tax remain to be seen. The Act aims to discourage speculative property flipping, but it comes at a time of higher interest rates and decreased sales activity. One thing is certain: any transaction that involves the sale of residential property soon after the initial acquisition must be carefully considered to determine any tax implications under the Act.

Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

This article is republished with the permission of Blakes, a leading Canadian law firm with offices in Toronto, Calgary, Vancouver, Montréal, Ottawa, New York and London. Tony Magre is an Associate, Vancouver; Alysha Visram is an Associate, Vancouver; John Graham is an Associate, Vancouver. More information: blakes.com

Whether he’s coaching minor hockey or guiding a team that helps high-risk

Taylor Lewis believes greatness comes down to the right attitude.

BROKERING A

BY LISA GORDON

After seven years of coaching representative minor hockey in Pickering, Ont., mortgage professional Taylor Lewis knows he’s going to miss it this year. He’ll even miss rising before the sun for 6 a.m. practices, heading to the rink on chilly winter Thursdays with coffee firmly in hand.

Lewis just concluded a lengthy stint as a non-parent rep coach with the Ajax-Pickering Minor Hockey Association (APMHA), working with the same core group of kids for the past six years. He’s watched them progress in skills and development from age 12 to 18 and remembers travelling to countless tournaments – even one in Florida during the team’s final season.

“It was really cool to watch these kids grow and see how their personalities evolved, and see them come together as a team,” said Lewis, adding that they inspired him as much as he inspired them. He loved sharing his passion for the game of hockey – Canada’s game.

However, after several years, it’s time for a new challenge within the local hockey community. Lewis has applied to join the APMHA’s discipline board, and, if all goes well, he hopes to highlight and assist visible minorities within the hockey community.

“My hope is that one day, I can help bring in a scholarship for visible minorities to AjaxPickering hockey.”

Lewis sees many parallels between coaching hockey and his work as assistant vice-president of originations and strategic partnerships for Canadian Mortgages Inc. (CMI).

“Coaching sees the sport from a different perspective,” he explained, adding that many people must come together to get someone into a home, creating a team-oriented atmosphere. “Brokers, brokerages, lawyers, appraisers, lenders – all come together for one loan, for one person.”

borrowers into home ownership,

MINDSET

Lewis likens the mortgage industry to a well-coached team that understands how to work together for a shared end goal. Just like on the ice, he says it can be challenging when there are different points of view and personalities coming together, but he marvels at each individual’s desire to see a deal reach fruition. “Just take a step back and look at the well-oiled machine that is the mortgage process.”

Though Lewis has been with CMI for approximately two-and-a-half years, his assistant vice-president position is a new challenge. That's fine with him, because he believes in challenging himself every day.

“I don’t see a world where I want to stay stagnant. My philosophy is perpetual advancement and improvement.”

Since graduating from the University of Ottawa in 2015, Lewis has spent most of his time in the mortgage industry, except for a short time as an account manager and recruiter for an IT recruitment company. His career began

when he accepted a student summer job with a lender.

“My parents were in finance and banking, and I thought this would be great experience.”

As his career developed, Lewis explored many aspects of the mortgage industry. He has worked in sales with brand development and in operations to learn and better understand the full scope of mortgage lending. He said this experience has helped him in his current role at CMI, where “it’s all operations and problem-solving.”

At CMI, a nationwide residential private sector lender, Lewis oversees a sales team that works directly with brokers to help higher-risk borrowers who cannot get a loan through the banks. His team often deals with brokers whose clients may not have a great credit rating, or those who cannot qualify at institutional lenders in the current rate environment. However, the idea is not to keep them with a private lender for the long term: “The goal is to get them in a better

position by the end of the (mortgage) term. It is not to keep them in private lending; it’s a transitionary vessel.”

Lewis also serves as past president of the Ontario chapter of the Canadian Mortgage Brokers Association (CMBA-ON), filling the president’s role from January 2024 to June 2024. He was treasurer for CMBA-ON in 2023 and, prior to that, sat on the board. He also sits on the national CMBA board.

When he’s not busy with work or volunteering for CMBA, Lewis enjoys a weekly round of golf (or two) when time permits. Golf and enjoyment are not always cohesive, he offered with tongue firmly in cheek: “You know what they say: It just takes one good shot to keep you coming back.”

Lewis believes in planning ahead, and said that when the proper mindset is applied, you can achieve great goals. He described a time when this worked very well at hockey tournaments.

“My hope is that one day, I can help bring in a scholarship for visible minorities to Ajax-Pickering hockey.

“I used to say to the kids, ‘Take it game by game.’ Then, I switched my approach and said, ‘We’re here for Sunday.’” He feels this helped the kids focus on their ultimate goal –the Sunday finals – which in turn took the pressure off them for the preceding games.

At age 30, Lewis acknowledges that he has many working years ahead of him in the mortgage industry. If people learn anything from him, he hopes it’s his desire to always “do better today than the day before.”

He firmly believes it’s a mantra that propels not only himself, but also those he encounters, to new heights.

This interview with Taylor Lewis continues our series Brokers off the Clock. In every issue, we ask a mortgage broker to tell us what they like to do when they’re not behind a desk. Be it working with animals, travelling to exotic places or or being involved with sports, we want to know how you unwind. Would you like to be profiled in a future edition – or suggest a fellow mortgage broker?

Contact info@cmba-achc.ca

Contact your local Business Development Manager: https://www.royalcanadianmortgage.com/contact-us

STEPS AND STRATEGIES

How to effectively achieve FINTRAC compliance

BY RAY BASI, J.D., LL.B., DIRECTOR OF EDUCATION FOR CMBA-BC AND MBIBC

In preparing for the upcoming extension of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) compliance requirements to mortgage brokers, lenders and administrators effective October 11, 2024, it is imperative to understand and implement policies and procedures that not only meet regulatory standards but also align with the specific circumstances of each brokerage. This article explores essential considerations necessary for brokers to effectively achieve compliance.

Greater detail as to compliance requirements can be found in Canadian Mortgage Broker magazine New Anti-Money Laundering and Anti-Terrorist Financing Requirements for Brokers, Lenders and Administrators (Spring 2023, p.20) and FINTRAC Reporting Requirements on Horizon (Winter 2024, p.42).

CMBA-BC is in the process of completing a course providing further detail. We expect the course to include checklists, albeit for reasons discussed in this article they will necessarily be in less detail than those a mortgage broker would hope for in an ideal world.

APPLICABLE TO BROKERAGES AND INDIVIDUALS

FINTRAC mandates compliance requirements aimed at preventing money laundering and terrorist financing. These requirements apply not only to the brokerage entity but also to individual brokers within the organization. Therefore, it is crucial for all stakeholders – whether brokers, lenders or administrators – to familiarize themselves with these obligations to avoid potential breaches.

LIMITATIONS OF GENERIC CHECKLISTS

While many in the industry seek simplified compliance through generic checklists, such an approach poses significant risks. FINTRAC's requirements are not prescriptive; rather, they are focused on achieving specific outcomes. This results-oriented approach allows flexibility for brokerages to innovate and tailor their compliance strategies according to their operational realities. Thus, relying solely on generic checklists may overlook nuanced aspects of compliance unique to each brokerage.

DEVELOPING TAILORED COMPLIANCE POLICIES

Achieving compliance requires developing robust policies and procedures tailored to the brokerage's size, complexity and operational scope. Key requirements include:

n IMPLEMENTING A COMPLIANCE PROGRAM: This involves appointing a designated compliance officer, establishing a training program and an implementation plan, and reviewing the compliance program at least every two years.

n TRANSACTION REPORTING AND RECORD KEEPING: Brokers must report

specified transactions and maintain accurate records as per FINTRAC guidelines.

n DUE DILIGENCE AND 'KNOW YOUR CLIENT' MEASURES: Understanding client profiles and transactional patterns is essential to identify and mitigate risks associated with money laundering or terrorist financing.

n ADHERENCE TO MINISTERIAL DIRECTIVES: Compliance also entails following any additional directives issued by relevant authorities.

TAILORING COMPLIANCE STRATEGIES BY SIZE

The approach to compliance varies based on the size of the brokerage:

n LARGE ORGANIZATIONS: These entities typically have more resources to invest in sophisticated compliance systems. They may employ advanced technologies and dedicated staff to ensure comprehensive monitoring and reporting.

n MEDIUM-SIZED ORGANIZATIONS: These brokerages focus on optimizing existing resources while managing costs. Efficiency improvements and risk management strategies are prioritized to align with regulatory goals.

n SMALL BUSINESSES AND STARTUPS: Limited resources necessitate a pragmatic approach. These entities may leverage industry best practices and seek guidance to meet compliance requirements efficiently.

One can see how these requirements would apply differently to brokerages of different sizes. A sole proprietor can appoint themself as the compliance officer or appoint someone else. However, in the case of an entity, the compliance officer can be a senior manager, the owner or the operator of your small business; or someone from a senior level who has direct access to senior management and the board of directors of your large business. A training program and implementation plan for a sole practitioner can be expected to be far less encompassing than one for a sizable brokerage. Knowing your client requirements for a small brokerage with repeat clients might be different than for a very large brokerage deal with a large flow of new clients.

Achieving FINTRAC compliance requires a nuanced approach that balances regulatory requirements with the operational realities of each brokerage. Generic checklists are insufficient; instead, brokerages must develop tailored policies and procedures that reflect their unique circumstances.

ADDRESSING VULNERABILITIES

Each segment – lenders, brokers and administrators – faces unique vulnerabilities:

n LENDERS: Whether using their own funds or pooled resources, lenders must ensure the legitimacy of funds they lend to avoid unwittingly facilitating money laundering.

n BROKERS: While not handling loan funds directly, brokers facilitate financial transactions that sometimes involve activities (such as short-term or repeat financing) that cause them to suspect money laundering may be occurring.

n ADMINISTRATORS: Responsible for handling incoming funds, administrators must be vigilant to prevent mortgages being paid off with illicit funds.

COMPLIANCE AT THE INDIVIDUAL BROKER LEVEL

Individual brokers must also ensure personal compliance with FINTRAC requirements, regardless of brokerage policies. This includes understanding the regulatory framework and adhering to internal policies set forth by their brokerage. An individual broker should raise any concerns they have concerning the brokerage’s policies and procedures with the brokerage.

CONCLUSION

In conclusion, achieving FINTRAC compliance requires a nuanced approach that balances regulatory requirements with the operational realities of each brokerage. Generic checklists are insufficient; instead, brokerages must develop tailored policies and procedures that reflect their unique circumstances. By doing so, brokerages not only mitigate compliance risks but also foster a culture of transparency and accountability within their operations. As the deadline approaches, brokerages should prioritize compliance efforts to ensure readiness and avoid potential penalties associated with non-compliance.

This article is not intended as legal advice. You are advised to obtain legal advice in specific instances.

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KEY INSIGHTS INTO L ATEST TRENDS

2024 CMHC Mortgage Consumer Survey shows current state of homebuying, homeownership and mortgage lending

Each year, Canada Mortgage and Housing Corporation (CMHC) carries out its annual CMHC Mortgage Consumer Survey. The goal of the survey is to better understand the thoughts, attitudes and behaviours of Canadian mortgage consumers about homeownership and the process of getting a mortgage.

The State of Homebuying in Canada highlights the main findings of the 2024 CMHC Mortgage Consumer Survey. It also offers key insights into the latest trends and current state of homebuying, homeownership and mortgage lending in Canada.

The Current Landscape

15% of Canadians took out a mortgage in the last 18 months (down from 16% in 2023)

12% of mortgage consumers were renewers or refinancers (down from 13% in 2023)

Overall, the Canadian mortgage landscape in 2024 was relatively similar to 2023. Among the provinces, consumers in Quebec and the Prairies/ Territories took out the most mortgages. Consumers in B.C. took out the least.

Source: The State of Homebuying in Canada: 2024 CMHC Mortgage Consumer Survey. More information: cmhc.ca/2024MCS

3% were homebuyers (down from 4% in 2023)

The numbers presented in this report have been rounded up or down. The sums included in graphs and tables are based on real numbers before rounding, and may not correspond to the totals of the rounded numbers.

This year, CMHC and Léger Marketing Inc. surveyed a total of 3,866 mortgage consumers.

The interviews were conducted in both English and French, and included Canadians aged 18 or over in every region of the country who: n are the primary decision-makers in their households, and n had undertaken a mortgage transaction in the past 18 months

KEY TAKEAWAYS FOR 2024

1.

Overall, the Canadian mortgage landscape in 2024 was relatively similar to 2023. The rate of mortgages contracted in the last 18 months were stable.

2. Renewing vs buying. Consumers renewing their mortgage increased (62% vs 58% in 2023) whereas repeat buyers and first-time buyers decreased.

3.

Significantly more mortgage consumers were impacted this year by rising interest rates (65% vs 50% in 2023). However, most consumers had strategies in place to avoid defaulting on their mortgage.

4. It took an average of 4.2 years for consumers to save for a down payment, with 30% of buyers receiving a gift to help with the cost.

5. While consumers continue to have concerns or uncertainty during the home buying process, the majority (79%) still believe it is a good long-term financial investment.

6.

Nearly three times as many buyers this year said high interest rates made them delay buying a home (13% vs 5% in 2023). First-time homebuyers and newcomers were the most likely to postpone.

7.

The vast majority of consumers did research before their most recent mortgage transaction, with 52% of consumers researching exclusively online, compared to just 34% in 2023.

8. Going green. Among homeowners who did energy efficient renovations, 93% are satisfied with the results of their renovations and 68% saw savings in their energy/electricity bills.

Source: The State of Homebuying in Canada: 2024 CMHC Mortgage Consumer Survey More information: cmhc.ca/2024MCS

LENDER’S FAILURE TO PROVIDE MORTGAGE DISCHARGE RESULTS IN DAMAGES FOR

BORROWER’S INABILITY TO COMPLETE SECONDARY TRANSACTION

BY JAMES R.G. COOK

The failure to provide a mortgage discharge on a timely basis may expose a lender to damages arising from a borrower’s inability to access the funds that are tied up with the mortgaged property. The principle of foreseeability may even extend to capture damages arising from the borrower’s loss of opportunity to complete another transaction using the funds that would have been available at the time the discharge ought to have been provided.

In De Rita v. 1266078 Ontario Inc., 2024 ONCA 460 (CanLII), the Court of Appeal for Ontario upheld an application judge’s finding that a lender’s delay in discharging a mortgage deprived the borrower of the opportunity to use the mortgaged property to obtain financing to fund the purchase of another property on Bruce Avenue in Windsor, Ontario.

Due to a dispute with the lender, the borrower had to obtain a discharge by court order. By the time the borrower did so, the purchase agreement for the Bruce Avenue property at an extremely favourable price had lapsed. The borrower then sought damages against the lender.

The application judge awarded damages against the lender of more than $150,000 based on the difference between the purchase price of the Bruce Avenue property and her estimate of what the property was worth when the borrower was able to re-enter the market, less certain deductions and contingencies.

On appeal, the lender argued that the application judge erroneously concluded that the mortgage discharge was the cause of the borrower’s damages since the borrower could have used other resources to purchase the Bruce Avenue property and was not reliant on the equity in the mortgaged property as the source of financing.

However, the Court of Appeal found no error in the application judge’s assessment of the evidence of the amounts borrowed nor with her conclusion that without the ability to access the equity in the mortgaged property, which could only be done after the mortgage was discharged, the borrower was without funds to complete the Bruce Avenue purchase.

The lender further argued that the borrower’s loss arising from the inability to complete the Bruce Avenue purchase was too remote in law to be recoverable since it was not a reasonably foreseeable consequence of the lender’s failure to provide the discharge. The application judge found that the loss of the Bruce Avenue purchase was not too remote, stating that a party registering a charge against title to the property of another must foresee the consequences of continuing to encumber title once the charge is spent. In the application judge’s words, “[s]lander of title is a tort premised upon the foreseeability of such harm.”

The principle of remoteness limits damages in breach of contract or tort claims to be losses that arise (i) “fairly, reasonably, and naturally as a result of the breach of contract”; and (ii) are “within the reasonable contemplation of the parties at the time of contract”: Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519, at paragraph 36. The remoteness test addresses the type of loss that is recoverable, not its quantum

The Court of Appeal agreed that the type of loss suffered by the borrower in this matter was recoverable under either branch of the test.

Even after the lender delayed in providing the discharge, it was specifically advised that further delay was threatening the borrower’s business opportunities. The lender could then have delivered the discharge and avoided the consequences that led to the claim. It chose not to do so.

The lender relied on the 1981 decision of the Court of Appeal in Kienzle v. Stringer, 1981 CanLII 1851 (ON CA), to argue that losses on a “secondary transaction” involving another property (the Bruce Avenue property), rather than the land that was the subject of the mortgage, should be unrecoverable. However, the Court of Appeal noted that Kienzle was a lawyer’s negligence case, not a claim against a mortgagee or about a mortgage discharge, and the damages in that case did not extend to “the loss of profits from secondary transactions which may [have] be[en] fuelled by funds expected from the marketing of the subject real property.” There had been no disclosure to the lawyer that the property at issue would serve as the basis for a future purchase.

In contrast, the application judge found there had been significant information disclosed to the lender. The lender was experienced and knew that the borrower was earning a living by buying, selling, and managing a portfolio of commercial real estate in Windsor, and that he was acquiring the mortgaged property with a view to earning a profit. It was therefore reasonably foreseeable that unlawfully impairing title to the mortgaged property would threaten the borrower’s access to the equity in his real estate and result in lost business opportunities. The loss of a business opportunity to the borrower, who was known to be in the real estate investment business, was a foreseeable type of loss at the time of contracting for the mortgage. While the Bruce Avenue transaction represented a particularly advantageous opportunity, the foreseeability of this particular loss related to the quantum, which did not have to be foreseeable.

Lastly, the lender argued that the application judge erred by failing to use the date of breach as the date to assess damages. However, prior Court of Appeal decisions have affirmed that while the date of breach is the presumptive date for assessment

of damages, the court may choose a different date depending on the context, such as cases where the innocent party establishes that it was not in a position to re-enter the market to mitigate at the date of breach: Akelius Canada Ltd. v. 2436196 Ontario Inc., 2022 ONCA 259, at paragraphs 22-25; The Rosseau Group Inc. v. 2528061 Ontario Inc., 2023 ONCA 814, at paragraph 62.

Here, the application judge exercised her discretion to vary the presumptive date and fix the date to assess damages based on applicable principles, namely the determination of when the borrower was able to re-enter the market. There was no error.

A major takeaway from the court’s approach to the principle of remoteness for the assessment of damages is its consideration of the overall fairness in the circumstances of the dispute. Here, the appellate court reasoned that there was no unfairness in the finding that the damages were not too remote. Even after the lender delayed in providing the discharge, it was specifically advised that further delay was threatening the borrower’s business opportunities. The lender could then have delivered the discharge and avoided the consequences that led to the claim. It chose not to do so. In the circumstances, it was not unfair to require the lender to pay the damages that were found to be the reasonably foreseeable result of refusing to provide a discharge when required.

The decision may cause some lenders to reassess whether they have valid grounds to refuse to provide a discharge to a borrower and the potential consequences of not doing so.

James R. G. Cook is a partner at Gardiner Roberts LLP and has been with the firm since 2002. As a litigator in the firm’s Dispute Resolution Group, he has experience in a broad range of commercial, real estate and professional liability litigation. Information: grllp.com

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