In an effort to cool down the housing market, the Federal and Provincial governments are implementing new taxes on real estate.
“The ban is a temporary two-year measure that is part of the government’s response to Canadians’ urgent concerns about housing affordability,” reads a statement sent by a spokesperson for the Minister of Housing, Diversity and Inclusion. “It (the law) is also expected to help reduce the flow of foreign money into Canada to purchase residential real estate.”
According to a recent Toronto Star article, there are already taxes on foreign home buyers in Ontario and B.C. It’s hard to find stats on foreign home ownership, but in 2017, Statistics Canada estimated that 3.4 per cent of all residential properties in Toronto and 4.8 per cent in Vancouver are owned by non-residents. Those numbers were higher for condos: 7.2 per cent in Toronto and 7.9 per cent in Vancouver.
In its budget 2022 the Federal government announced The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) that came into affect on January 1, 2023 for a period of two years.
The following are key highlights:
This two-year ban for the purchase of residential real estate in Canada applies to foreign corporations and individuals who are not citizens or permanent residents of Canada and includes direct and indirect purchases.
According to the Prohibition on the Purchase of Residential Property by Non-Canadians Act, a residential property is defined as s buildings with 3 homes or less, as well as parts of buildings like a semi-detached house or a condominium unit. The law does not prohibit the purchase of larger buildings with multiple units and does not apply to larger buildings with multiple units. The federal government has provided a map showing where the law does and does not apply.
According to the CMHC, the legislation aims to “make homes more affordable” for those living in Canada by cracking down on foreign investment.
“Homes should not be commodities,” Housing Minister Ahmed Hussen said in a press release issued on Dec. 21, 2022. “Homes are meant to be lived in, a place where families can lay down roots, create memories and build a life together.”
Housing affordability continues to be a challenge in Canada. Although average home prices have dropped in recent months, an assessment published by the Parliamentary Budget Office in September 2022 shows the average cost of a house is 67% more than what the average Canadian household can afford.
Although the legislation targets non-Canadians, there are some exceptions. Those in Canada with temporary work permits are still allowed to buy residential properties, as are refugee claimants and international students who meet certain criteria.
The ban does not apply to those who are Canadian citizens or permanent residents, nor does it apply to non-Canadians who are looking to rent a residential property in Canada.
Non-Canadians with a spouse or common-law partner who is a Canadian citizen, permanent resident, person registered under the Indian Act or refugee are also exempt from the ban.
Recreational properties such as cabins and lake houses are exempt as well.
Non-Canadians who violate the ban can be fined up to $10,000 and may be required to sell the property they purchased. Those who knowingly assist a non-Canadian with their purchase can also be fined.
Many experts are not convinced this ban will have the desired effect to cool the market down. For starters, Canada’s most unaffordable provinces both British Columbia and Ontario already have 20 and 25 per cent foreign buyers’ taxes in place, this leaves them with already small pools of would-be non-resident buyers. Over the past two years from the start of the pandemic in 2020, the housing market was hyper active in both provincial markets despite the foreign buyers tax supporting the argument that foreign buyers have not been behind the rising housing prices. The addition of this foreign buyers ban is questionable at a time when the housing market has cooled down organically and we already have the foreign buyers tax in force.
Perhaps it is unsurprising that the two levels of governments are not working in tandem.
In an effort to end Ontario’s housing crisis and to discourage foreign speculation, as of October 25, 2022, Ontario raised its foreign buyers tax on homes purchased by foreign nationals from 20 per cent to 25 per cent. Also known as the non-resident speculation tax (NRST) it applies to certain foreign buyers of Ontario homes. Note that the NRST is in addition to Ontario’s land transfer tax that generally applies to the purchase of residential properties. The NRST applies to all residential properties across Ontario that are purchased by foreign nationals, foreign corporations and taxable trustees.
The Progressive Conservative government previously increased the non-resident speculation tax from 15 per cent to 20 in March, and expanded it to cover the whole province, instead of just the Greater Golden Horseshoe area of southern Ontario.
According to housing industry observers, the surprise move to increase this tax won’t have much effect on the province’s already-cooling market.
Additionally, it’s unclear why the Provincial government is increasing this tax as the Federal government has placed a two-years ban on Foreign Buyers?
For the NRST to apply, the land transferred must contain at least one, but not more than six, single family residences. A detached house, semi-detached house, townhouse and condominium unit would each be considered one single family residence.
The tax is:
of the value of the consideration for the residential property.
The NRST is payable at the time of registration through Ontario’s electronic land registration system, Teraview.
The NRST applies in addition to the province’s general land transfer tax and any municipal land transfer tax (e.g. Toronto’s Municipal Land Transfer Tax).
The Foreign Buyers ban and the Foreign Buyers tax (NRST), are the governments effort to make home buying in Ontario more expensive for foreign buyers.
