Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners

In the April 19, 2021 budget, the Federal government announced it will finally move forward with the 1% tax applicable on under-used properties owned by non-residents of Canada, starting in 2022. This new tax could have a significant impact on your finances and/or those of your clients. Previously, Vancouver and Toronto had put in a similar tax on foreign owned unused property, as the government considers these foreign investors to be speculators, and potentially simply inflating our already overheated domestic housing market.

This means anyone not holding a Canadian passport or a Canadian permanent resident card will be targeted by this new law.

The roll-out of the proposed tax  is still unclear: how they will apply the regulation changes; determine qualifying non-residents and the basis of the tax calculation (purchase price, municipal evaluation, etc.).  They will also have to decide if a non-resident co-owner will be covered when owning jointly with a Canadian resident.  Finally, they will have to rule if this will be a voluntary obligation; meaning that one must file the required form yearly (self-assessing),without waiting on any government’s prompting, like many tax rules, unfortunately. There is discussion of hefty penalties for non-compliance (though  it is unclear at this point what those may be). CRA promised more information in the coming months.

Will this trigger a wave of property sales? The effects are unclear, since depending on the non-resident’s purpose for acquiring property in Canada (there are many possible scenarios), it is hard to say whether the new tax will prompt sales or just be considered as another carrying cost for those looking to speculate or invest or diversify in a foreign market.

And just as a reminder, non-resident owners who sell will need compliance certificates under article 116 (and article 1097 in Quebec).

This may possibly mean more properties being put on the market to rent, as non-resident owners look to recover some of this new tax by creating income when they are not using these properties personally. If they do, owners will be required to remit 25% of their gross rent each month to the CRA, per part XIII of the tax law, and then file a Canadian tax return under section 216.

Whichever direction you choose, as a non-resident foreign owner, our team will be ready to provide you and the professionals who support you in your transaction, whether a lawyer, notary or real estate agent, with the latest information and services you need. Do not hesitate to contact us to ask for help.

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