Purchasing Real Estate in Canada?

Be aware of the new and existing rules

Dennis Reynolds
Ananth Balasingam
| 1/24/2023

In recent years, several measures related to the purchase and ownership of Canadian real estate came into effect. These new measures are designed to regulate Canada’s booming housing market. 

The following is an overview of some of the new and existing rules that may affect owners of Canadian real estate property.

Two-Year Prohibition on the Purchase of Residential Property by Non-Canadians

Effective January 1st, 2023, the Government of Canada has implemented a new law to prevent non-Canadians from purchasing real estate in Canada. This new law will be in effect for a two-year period beginning on January 1, 2023 and will apply to non-Canadian individuals, non-Canadian entities and foreign-controlled Canadian entities.

These rules do not apply to Canadian citizens or permanent residents of Canada. There could be exemptions available for certain individuals such as international students or workers who have spent or worked for a significant period of time in Canada prior to the purchase of the property. 

Non-Resident Speculation Tax

The Ontario Non-Resident Speculation Tax applies on the purchase of any residential property located in Ontario by foreign nationals. A foreign national is an individual who is not a Canadian citizen nor a permanent resident of Canada. The tax will also apply to non-Canadian entities, foreign-controlled Canadian entities, and certain trusts. Effective October 25th, 2022, the Ontario government increased the tax from 20 to 25 per cent, applicable on the purchase price of any residential property in Ontario.

The province of British Columbia has a similar tax applicable to foreign nationals purchasing residential property in the province. The tax in British Columbia is currently 20 per cent and applies to the purchase of property in certain regions of the province, such as the city of Vancouver.

Federal Underused Housing Tax

The Federal Underused Housing Tax is an annual 1 per cent tax on the ownership of vacant or underused residential property in Canada. The law took effect on January 1st, 2022 and applies to corporations, partnerships and trusts, whether they are resident or non-resident of Canada. The tax also applies to individuals who are not Canadian citizens nor permanent residents of Canada.

The annual 1 per cent tax is applied to the taxable value of the home if the property is considered “underused” in the year. If the property is occupied by you or rented to an individual at fair value, in periods of at least one month that total 180 days or more in the calendar year, the property would not be considered “underused,” and no tax would apply. There are other exceptions that could apply as well.  

Although property-owners who own residential property that is not considered “underused” will not be liable for the tax, a return related to the Underused Housing Tax may still need to be filed by April 30th of the following year. Canadian citizens and permanent residents of Canada are not subject to the Underused Housing Tax and do not have a requirement to file the return. 

Vacant Home Tax

The City of Toronto has implemented an annual tax to be levied on Toronto residences that were unoccupied for a total of six months or more during the previous calendar year. The first calendar year in which this rule applies is 2022, with the tax payable in 2023. Owners of properties that are vacant for more than six months during the calendar year will be liable to pay a tax equal to 1 per cent of the current assessed value of the home. There are certain deeming rules and exemptions that could apply. All Toronto resident property owners are required to submit a declaration of their property’s 2022 occupancy status by February 2, 2023, regardless of whether the property was occupied or unoccupied during the year. 

The City of Vancouver implemented a similar Empty Homes Tax in 2019. In 2022, the tax is 3 per cent of the property’s assessed value. For 2023, the City of Vancouver has increased the Empty Homes Tax to 5 per cent of the assessed taxable value. The declaration due date for 2022 is February 2, 2023. Any tax owing for 2022 is due by April 14, 2023. 

The province of British Columbia also has a separate annual speculation and vacancy tax. The annual tax could be up to 2 per cent of the assessed value of the residential property located in certain areas within the province.

In addition to the above, other Canadian cities, such as Ottawa and Hamilton, have implemented a similar vacancy tax.

Will these measures impact you?

It is important for purchasers and owners of Canadian real estate to be wary of these rules, as penalties and fines could be applicable for non-compliant taxpayers. Contact your Crowe Soberman advisor to see how these measures impact you. 

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.

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Ananth Balasingam Crowe Soberman
Ananth Balasingam
Partner, Tax
Ananth Balasingam Professional Corporation