As part of its budget and economic outlook update on Monday, the federal government announced a plan to tax unproductive use of housing by non-resident foreign landlords, which is often attributed to rising prices housing in key markets.
“Too often, home prices are out of reach for Canadians, especially those looking to buy their first home. Speculative demand from non-resident foreign investors is contributing to unaffordable housing prices for many Canadians, ”the Federal Update Report reads.
“To help make the housing market safer and more affordable for Canadians, the government is committed to ensuring that non-resident foreign landlords, who are simply using Canada as a place to passively store their wealth in the housing, pay their fair share.
At this early stage, there is no indication of what form the tax might take or what thresholds would govern the framework.
The report adds that the federal government will take steps over the coming year to implement a “national fiscal measure” in the coming year that targets “the unproductive use of domestic housing owned by non -residents, non-Canadians, which removes these assets from the national housing supply.
Such a tax could have a particular impact on the new high-end condominium market, as it is one of the types of residential properties most commonly exploited by foreign investors. The developers of these projects are known to push their marketing activities overseas.
The impact is unlikely to be evenly distributed geographically, and the two urban centers where housing affordability issues are most severe – Vancouver and Toronto – may see a lessened impact.
For several years, British Columbia and Ontario have had their own provincial taxes on foreign buyers, which have eliminated a significant proportion of foreign activity in local residential real estate. Since then, foreign buyers have increasingly turned their interests elsewhere, such as Montreal and south of the Canada-US border.
Foreign buyers in Metro Vancouver, the Fraser Valley, Greater Victoria, Nanaimo and the Okanagan see an additional 20% tax in British Columbia on the fair market value of the residential property. The housing market eased considerably after the tax came into effect in 2016.
In 2019, the Provincial Speculation and Vacancy Tax (SVT) targeting foreign owners, satellite families and Canadians living outside of British Columbia also came into effect. Foreign owners who own properties subject to SVT are taxed at 2% on the value of the property.
The city of Vancouver also has its own empty house tax, which will rise to 3% starting in 2021.
Following in British Columbia’s footsteps, Ontario created its 15% Non-Resident Speculation Tax on the purchase of residential properties located in the Greater Golden Horseshoe by individuals who are not citizens or permanent residents of Canada or by foreign entities.