Foreign buyers' tax increases lawyer workloads
By AdvocateDaily.com Staff
Members of the bar have seen their workload boosted by the province’s foreign buyers’ tax, says Toronto real estate lawyer Daniel Bernstein.
Formally known as the non-resident speculation tax, the measure imposes a 15-per-cent surcharge on the purchase of residential properties in the Greater Golden Horseshoe Area, which takes in communities all the way from the Niagara Region to Peterborough.
Buyers who are not citizens, permanent residents or Canadian corporations will have to pay the levy, which mirrors similar measures imposed last year in British Columbia.
Ontario’s Finance Minister Charles Sousa initially rejected the idea of copying the B.C. tax in Ontario, but then backtracked as house prices continued to rise. In Toronto, they hit an average of more than $900,000 in March, which represented a 33-per-cent spike over the same month in 2016.
Bernstein says lawyers for purchasers must now exercise extra due diligence to confirm that their clients don’t meet the criteria for the new tax.
“We ask for passports and permanent residence cards in addition to the regular forms of identification, which is something we were never required to do before,” he says.
Residency and citizenship details are not the only potentially sensitive information lawyers must now turn over to the government about their clients since the introduction of the new tax.
New forms introduced as a result of the levy require buyers to confirm whether they intend to occupy the subject property as their principal residence, if they intend to rent out the property, and whether it is being purchased on behalf of an undisclosed beneficial owner.
“Some clients have been worried about what happens if they ever rent out the property in the future. We tell them to put down what their intention is right now,” Bernstein says.
He says some of his colleagues at the real estate bar have also expressed concern about their exposure should it turn out their clients lied or fabricated evidence about their citizenship, but have been reassured by legal professional development sessions on the subject led by other lawyers.
“The feeling seemed to be that as long as you obtained all the information from your client and did the best you can to confirm what they told you, then there is no need to be concerned,” Bernstein says. “That’s the reason we ask now for the passports and permanent resident cards.”
If buyers do qualify for the extra tax, Bernstein says they will face additional hurdles to closing their deal, since the province’s electronic Teranet system for land registry is not currently set up to accept its payment.
“You can pay the land transfer tax through your Teranet account, but it doesn’t have the ability yet to deal with this new tax. You have to go and pay the money in person,” he says.
Bernstein says it’s still too early to tell whether the surcharge will have the desired effect of cooling the Toronto real estate market.
“I guess you have to look at what’s going on in B.C. for a guide,” he says. “I’ve already heard about properties in Montreal starting to go up in price.”
In Vancouver, real estate company Royal LePage believes the cooling period that followed the introduction of B.C.’s tax in August may already be over. The firm reported a 12-per-cent hike in the average price of a Greater Vancouver home over the first three months of 2017, to $1.2 million.
"There is now reason to believe that the market correction underway in Vancouver may be short-lived," Royal LePage CEO Phil Soper told the Canadian Press. "The principal victims of the B.C. government's foreign buyer tax were Canadians who had planned to sell or buy a home and were frightened away by unsubstantiated rhetoric in which the Chinese were entirely to blame for Vancouver's housing shortage.”