Foreign Buyer’s Tax in Canada | Fivewalls

Foreign Buyer’s Tax in Canada | Fivewalls

Buyers, Tips & Advice, Investors
Last Updated: Jan 27, 2021

Can foreigners buy property in Canada? The short answer is yes, but they will be subject to the foreign buyer’s tax in Ontario or BC. Keep reading to learn more about the speculation and vacancy tax, including how it works, how to calculate it, and which areas of the province are subject to it. 

Foreign Buyer’s Tax When Buying Property in Ontario

The residential real estate market in Ontario has seen unprecedented growth over the last several years. These massive price increases have been a cause for concern, and many are afraid that the market is at risk of a price bubble. 

The policymakers in Ontario have responded to this by implementing a foreign buyer’s tax, which aims to discourage individuals who do not reside in the area from buying real estate to engage in speculation. 

How Much Does Ontario Tax Foreign Buyers?

As of April 2017, any foreign buyer is subject to the non-resident speculation tax of 15% when purchasing a residential home in the Greater Golden Horseshoe. The Ontario speculation taxes are in addition to the other required land transfer taxes, so buying a property that you will not live in can be quite expensive. 

Who Is Liable for the Foreign Buyer’s Tax?

Individuals that are liable for the foreign buyer’s tax include foreign nationals, foreign corporations, and taxable trustees. 

Foreign Nationals

A foreign national is an individual that is not a Canadian citizen or a permanent resident of the province. For instance, if you live in Europe or the United States and purchase a residential property in Ontario, you will be subject to the foreign buyer’s tax. 

Foreign Corporations

Foreign corporations are also liable for the non-resident speculation tax. A foreign company is incorporated outside of Canada, but if specific criteria are met, even a company incorporated in Canada can be considered a foreign corporation. 

If the Corporation is controlled by a foreign national - or by another company outside of Canada - it will be subject to the foreign buyer’s tax. Likewise, a corporation whose shareholders are all owned outside of Canada will also be liable to pay these funds. 

Taxable Trustees

A taxable trustee refers to a trust that has at least one trustee that is a foreign entity. If this is the case, any residential property purchase in Ontario will be subject to the 15% non-resident speculation tax

The foreign buyer’s tax will also apply if the beneficiary of the trust is a foreign entity.

Exemptions to the Foreign Buyer’s Tax

There are a few exemptions to the foreign buyer’s tax. These exemptions allow an otherwise liable person to avoid paying the additional fee. 

For instance, any individual that purchases a residential property in Ontario who is a refugee at the time is exempt from this tax. If the individual is confirmed as a nominee under the special Ontario immigration program, they will also be exempt from the non-resident speculation tax. However, this is contingent on the property being used as their primary residence. 

The spousal exemption is another way to avoid the foreign buyer’s tax. If a foreign national were to purchase the property jointly with their spouse - who is either a Canadian citizen, permanent resident, or exemption nominee - they would not have to pay the speculation and vacancy tax. 

Calculating the Non-Resident Speculation Tax

So, how do you calculate the non-resident speculation tax

To determine the total tax, use the purchase price of the new residential property. For example, if you are a foreign national and by a single-family home for $700,000, the 15% NRST would require you to pay $105,000 in taxes:

$700,000 x 15% = $105,000

As you can see, this tax can become very expensive very quickly!

It is important to note that only the residential property portion of the purchase price is included in this calculation. If any other excluded property type - like agricultural land - is purchased, the non-resident speculation tax will not apply to that portion.  

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Applicable Areas under the Golden Greater Horseshoe

The non-resident speculation tax applies to various areas in the Golden Greater Horseshoe. When the Ontario government initially introduced the foreign buyer’s tax, it was designed to target foreigners who were purchasing homes in this area and inflating the real estate market. 

This area is often referred to as GHCA, and it includes the following towns that surround Toronto:

Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington, and York.

Simply put, if you plan to purchase a residential property in one of these towns - and you're considered a foreign national - you will be required to pay the 15% non-resident speculation tax

Properties Subject to the Non-Resident Speculation Tax

As we mentioned earlier, only residential properties in the Golden Greater Horseshoe area are subject to the foreign buyer’s tax. Let's dig in a little bit further to which specific property types fall into this category. 

Any residential property that contains at least one - but not more than six - single-family residences is subject to the non-resident speculation tax. A single-family residence refers to a fully detached home, townhouse, condominium, semi-detached home, or apartment unit. If the property includes duplexes or triplexes, it is considered to contain more than one family residence.  

If you are buying a rental apartment building that has more than six units, agricultural property, commercial property, or industrial property, the foreign buyer’s tax will not apply. Note that if you purchase agricultural land that contains a single-family residence, it will be deemed as exclusively agricultural property. 

What if you purchase a property that includes both a residential component and another type of land? In this case, you will still pay the non-resident speculation tax, but only on the portion of the purchase price that is considered residential. 

Foreign Buyer’s Tax When Buying Property in British Columbia

Like Ontario, British Columbia has also implemented a non-resident speculation tax. This guide will give you insights into how the BC speculation tax works, the timeline in which it was developed, and how to calculate it. 

What is the Foreign Buyer’s Tax?

The BC foreign buyer’s tax is a fee charged to purchasers who are not Canadian citizens or permanent residents. This tax is in addition to the property transfer tax, and the provincial government issued it to address the problems with the housing market in Vancouver. 

Timeline of the Foreign Buyer Tax in BC

The Vancouver housing crisis is not a recent development. In fact, it has been an issue since the late 1970s, and many factors have contributed to the massive growth in the Vancouver housing market. 

This inflationary market resulted in Vancouver being named the third most unaffordable city in 2016. This statistic finally prompted the BC government to take action by introducing the Housing Initiatives Amendment Act. 

This act can be divided into four distinct parts: the vacancy tax, foreign buyer’s tax, amendments to the Real Estate Services Act, and creating a new housing initiative. 

The act was first announced in July 2016, and it received the royal assent before the end of the month. In August 2016, the BC government officially imposed the 15% foreign buyer’s tax, and this was raised to 20% of the purchase price in February 2018. 

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Areas Subject to the BC Foreign Buyers Tax

This expensive levy is applied to several regions in BC. the following regions are subject to the non-resident speculation tax:

  • Fraser Valley Regional District 
  • Metro Vancouver Regional District 
  • Capital Regional District 
  • Regional District of Central Okanagan 
  • Regional District of Nanaimo

Properties located on Tsawwassen First Nation treaty lands are not subject to the speculation tax.

If you are a foreign national that intends to purchase a home in one of these areas, be sure that you thoroughly understand the implications of the foreign buyer’s tax. 

Calculating the BC Foreign Buyers Tax

Let's review how to calculate the BC non-resident speculation tax

The current rate is 20% of the purchase price of your home. That means if you buy a home valued at $700,000, you will be subject to a foreign tax of $120,000:

    $700,000 x 20% = $120,000

The value subject to the tax is the purchase price of the residential portion of the property. You will pay the 20% tax on the fair market value of the whole property if the BC Assessment classifies the entire purchase as a class 1 residential area. 

If the BC Assessment states that the property is agricultural land - even if it includes an owner’s dwelling - you are only responsible for paying the tax on residential improvements plus 0.5 hectares of land. 

There are some instances where the property class is mixed. This means that it will include residential property like a condo, combined with a class 6 commercial space. In this scenario, you will pay the foreign buyer’s tax on the purchase price of the residential property. However, the commercial space is exempt from the additional transfer tax. 

BC Tax Regulations and Exemptions For Foreign Buyer’s Tax

The tax regulations regarding foreign buyers in BC are very similar to those in Ontario. Any foreign national, foreign company, or taxable trustee that purchases a residential property in the province is subject to the non-resident speculation tax. 

A foreign national can be exempt from this additional tax if they are also exempt from the property transfer tax. It is important to note that certain transfers, even if they are exempt from the property transfer tax, will be subject to the foreign buyer’s tax. These transactions include the following:

  • A transfer to a surviving joint tenant due to the death of a joint tenant 
  • Any transfers made to change registered trustees that do not involve changing beneficiaries or trust terms
  • A transfer that results from an amalgamation under the Business Corporations Act or a similar provision s

Individuals can also avoid the tax if they are confirmed as a BC provincial nominee or are acquiring the property on behalf of a limited partnership controlled by Canadians. 

The exemption allowing Canadian-controlled limited partnerships to avoid the foreign buyer's tax was enacted as part of an amendment passed in June 2020. Before this amendment, the partnership regulations were somewhat unclear, but this adjustment is a positive development for investors in the BC real estate market. 

If the transferee is acquiring the land on behalf of the limited partnership - of which every general partner is a Canadian citizen or permanent resident - the transaction will be exempt from the non-resident speculation tax. 

This foreign buyer’s tax does not apply to a real estate investment trust or specified investment flow-through trusts, either.

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Other Legal Implications As A Foreign Buyer Of Canadian Real Estate

When you purchase residential property as a foreigner, there are legal implications in addition to the foreign buyer’s tax. Purchasers are legally required to disclose information to the Canadian government regarding their intentions for the purchase of property and information regarding their residency and citizenship. 

The information provided will describe whether the buyer intends to occupy the home as their principal residence after closing and the type of dwelling on the property. They must also disclose whether they intend to lease a portion of the land after purchase.

If the purchaser is a corporation, they must disclose information about their ownership, incorporation, and control. Purchasers acting as trustees must provide any relevant information about the beneficial owners of the property. 

The foreign buyer’s tax is a major hurdle for purchasers in Ontario and BC that are not Canadian citizens or permanent residents. The assessment of 15% and 20%, respectively, is a significant expense in an already expensive market!

The Ontario and BC government put the non-residential speculation taxes in place to protect the housing markets from growing at unsustainable rates.

Although there are some exceptions, most foreign buyers of residential properties will be required to pay this additional tax. Keep this in mind if you are a foreign national looking to purchase a residential property in Ontario or BC. 
 

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