Trudeau Liberals consider expanding access to 'halal mortgages' to cater to Muslim Canadians

The Trudeau Liberals' recently tabled Budget 2024 mentioned a push to expand access to the vibrant and growing market of alternative financing products, such as "halal mortgages" that would "enable Muslim Canadians, and other diverse communities, to further participate in the housing market."

Muslims who adhere to the teachings of the Quran are forbidden from receiving or paying interest, however financial institutions have created alternative systems that allow customers to pay the equivalent of interest without calling it that. 

In the budget, the government explained that moves were under consideration that "could include changes in the tax treatment of these products or a new regulatory sandbox for financial service providers, while ensuring adequate consumer protections are in place."

The document went on to note that, "in March 2024, the government began consulting financial services providers and diverse communities to understand how federal policies can better support the needs of all Canadians seeking to become homeowners," and that, "the government will provide an update in the 2024 Fall Economic Statement."

While many online took the announcement to mean Muslim Canadians would be effectively paying less for property, those entering into halal mortgages would pay the same, if not more, than their non-Muslim countrymen.

According to Nerdwallet, there are three types of halal mortages, murabaha, ijara, and musharaka.

Under traditional murabaha, a financier purchases the property and sells it to the homebuyer right away at a higher price that includes the equivalent of interest.

Under ijara, a financier purchases the property and rents it to the future owner at a price that includes the equivalent of interest until the full amount is paid off, at which point the title is transferred.

Under musharaka, a financier and homebuyer purchase the property together, and the latter pays their share plus a little bit of the former's share each month until it is bought in full.

As Nerdwallet reports, however, aspects of halal mortgages are incompatible with Canada's tax code, namely, provisions related to double capital gains and land-transfer, thus it remains to be seen whether they will ever be permitted as a legal alternative to traditional interest-based mortgages.