Two recent pieces of legislation will significantly impact foreign real estate buyers looking to invest in Canada.
Canadian real estate finds itself in an intriguing position. During the pandemic, interest rates hit record lows and property prices hit significant highs. Now, a notable softening is predicted. This presents compelling investment opportunities for savvy international real estate buyers.
Canada’s stunning landscapes and vibrant cities, paired with its global reputation as a stable, safe and welcoming country, have always made it an attractive home for expatriates, international students, vacationers and foreign investors. This softer, more competitive landscape may be an excellent time for international investors to secure their stake in this market.
Two recent pieces of legislation may impact foreign property investors. Below is an overview of the changes and their potential impacts.
NRST
The Non-Resident Speculation Tax (NRST) came into effect on 30th March, 2022. It asserts that if a non-resident acquires an interest in any property in Ontario, they must pay a tax equal to 20% of the value of purchase price, in addition to any other applicable Ontario real estate taxes.
The legislation applies to all foreign entities, defined as:
* Foreign nationals (neither Canadian citizens nor permanent residents)
* Foreign corporations
* Foreign taxable trustees.
However, some properties are not subject to the NRST. These include:
* Multi-residential apartment buildings with more than 6 units
* Agricultural land
* Commercial or industrialised land.
No tax exemption applies if the buyers are a combination of foreign nationals and Canadian citizens. The tax payable is based on the value of the consideration and the buyers are jointly and severally liable.
NRST Exemptions
Various exemptions do apply, however, most notably if the transferee is a spouse of a Canadian citizen, or themselves a permanent resident.
If the foreign national and their exempt spouse hold the property with any other transferees, then the NRST can only be waived if the transferees are Canadian citizens or permanent residents, or the spouse of one.
The NRST also provides for rebates. This function is available for foreign nationals who:
* Become permanent residents of Canada within 4 years from the property’s acquisition date
* Occupy the property as their principal residence (subject to various conditions)
* Importantly for Middle Eastern investors, international students may also be entitled to the NRST rebate
* Similarly, foreign nationals working in Ontario may also qualify.
Bill C-19 (44-1)
In effect from 1st January, 2023, Division 12 of Bill C-19 is the Prohibition on the Purchase of Residential Property by Non-Canadians Act. It prevents the purchase of residential property by non-Canadians for 2 years (non-Canadians are defined as individuals who are neither Canadian citizens, permanent residents nor a corporation incorporated in Canada).
Non-residents whose spouses are Canadians citizens or permanent residents are exempt.
‘Residential property’ is defined as a detached house containing no more than 3 dwelling units, semi-detached houses, new houses and residential condominium units. Though not specifically exempted by the legislation, all other real estate types are likely exempted — commercial property, agricultural, vacant land and multiple residential properties. Recreational properties appear to fall under the ‘residential property’ umbrella.
If a non-Canadian does purchase non-exempt property, a Can$10,000 fine may be levied. The Minister (as appointed from time to time) may also apply for an Order of Sale for the property.
Once this legislation takes effect, it will render the taxing provisions of the NRST irrelevant.
For international real estate buyers considering the Canadian market, the importance of a knowledgeable and trustworthy team cannot be understated. Christie’s International Real Estate is the world’s largest luxury real estate agency, with offices in 47 countries. If you wish to take advantage of the Canadian real estate market opportunity, we are here to help.
Click here to read the NRST and Division 12 of Bill C-19.
