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The real estate market in Canada is changing. Between the impacts of rising interest rates and inflation, a lot of work is going on behind the scenes to correct the problem of unaffordable housing for Canadians. However, among these changes come some key pushes against foreign real estate investors.
While Canadian residents own the majority of Canadian real estate, there have been concerns about the impacts of foreign speculation and investments in Canada driving up the cost of real estate while also allowing the properties purchased to fall into worse condition due to poor supervision on the part of these investors.
So, as a result, Canada and its provinces have been introducing new laws and legislations in order to crack down on these investors in order to combat the additional stress being put on the market. So, let us take a look at some of these measures.
While there are many restrictions, there are still some avenues open for foreign investors who want to try their hand in part of Canada’s market. If you are interested in learning more about the options that are available and require financing, click the link below to book a free strategy call today.
Ontario Raises Taxes On Foreign Investors and Buyers
On October 25, 2022, the Government of Ontario enacted an increase on the Non-Resident Speculation Tax. This tax, also commonly known as the foreign homebuyer tax, is a tax put on top of the purchase price of a home in Ontario.
This tax is meant to discourage blind residential investments from foreign investors such as individuals and corporations and slow the rate they buy interest in Canadian properties.
How Is It Changing?
Previously, the Non-Resident Speculation Tax was set at 20 per cent of the purchase price of a residential property. However, on the 25th that rate was raised to 25 per cent of the purchase or acquisition of interest in a residential property in Ontario.
Who Does The Tax Apply To?
The foreign buyers tax applies to almost all foreign entities or taxable trustees who purchase or acquire interest in residential properties in Ontario.
This means that any individual who is not a citizen of Canada or a permanent resident under Canada’s immigration laws is subject to this tax. Additionally, any business or corporation that is not incorporated or otherwise taxed in Canada is subject to this tax for residential real estate purchases.
Who is Exempt?
There are three primary circumstances where an individual can be considered exempt from the tax. These circumstances are:
A person currently nominated under the Ontario Immigrant Nominee Program may be exempt from the tax if the following criteria are met.
- The individual is presently nominated under the Ontario Immigrant Nominee Program at the time of purchase
- The individual has applied or certifies that they will be applying for permanent resident status of Canada before their nomination expires.
- If the nominee owns any property with other transferees, those individuals must be Canadian citizens, permanent residents of Canada, nominees, or protected persons.
- All transferees must certify that the property will be their principal residence.
Protected Person (Refugee) Exemption
A person who is buying a property in Canada may be exempt from the tax if they have refugee protection under section 95 of the Immigration and Refugee Protection Act. However, all transferees must be Canadian citizens, permanent residents of Canada, nominees or protected persons and indicate that the property is going to be their principal residence.
Finally, an individual may be exempt if they are the spouse of a Canadian citizen, permanent resident, nominee, or protected person as long as the property is set to be their principal residence.
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Canada Is Imposing a Temporary Ban on Foreign Investors and Homebuyers
On top of the tax increase in Ontario, Canada is imposing a temporary two-year ban on foreign investors and homebuyers in Canada which will take effect on January 1, 2023. The Prohibition on the Purchase of Residential Property By Non-Canadians Act, is meant to put a stop to foreign homebuying the country for the span of two years in order to provide a better opportunity for Canadians to purchase property while the country works to increase the overall housing supply without forcing them to compete with foreign investors.
This act defines a Non-Canadian as a person or corporation that fits one of the following descriptions.
- An individual who is neither a Canadian citizen, permanent resident, or a person registered under the Indian Act.
- A corporation that is not incorporated under Canadian law or a Canadian province.
- A corporation incorporated under Canadian law that is not listen on a stock exchange in Canada and is controlled by person or corporation designated by the above criteria.
Which Properties Are Not Included In This Ban?
While this ban does impose sweeping restrictions on the ability for foreign investors to buy property, there are certain types of properties that are not impacted under the ban and will be open for foreign investors to purchase. This list includes commercial and industrial properties as well as most large-scale residential properties with more than four legal dwelling units.
Building The Opportunities for Investment
Beyond the complicated nuances of these measures, on thing is very clear. These actions are being taken to increase the number of opportunities for Canadians and Canadian residents to buy and own property in Canada instead of allowing these opportunities to go to international investors looking to profit off of the Canadian market.
So, it is important to take this opportunity being presented and seize it to its fullest potential – and all of that starts with a strong mortgage. By getting the proper financing for your investment properties, you can maximize your ability to use and shape properties to suit your goals while also increasing your potential to further scale your portfolio.
So, if you are ready to get started with the best available rates, visit us online at LendCity.ca or give us a call at 519-960-0370 to begin your journey today. Alternatively, click the link below to book a free strategy call with our team at LendCity.