Real Estate

Non-resident tax may not cool Ontario’s hot housing market: Duensing

By Mia Clarke, Associate Editor

With housing costs on a “runaway trajectory,” it remains to be seen whether the province’s attempt to stabilize the market will be successful, Toronto real estate lawyer Matthias Duensing writes in The Lawyer’s Daily.

“In an attempt to bring the housing marketing under control, the Ontario government proposed several measures to cool off demand, increase the supply of affordable housing and stabilize prices,” says Duensing, principal of Duensing Law.

“Ontario’s Fair Housing Plan of April 2017 introduced several measures to help potential homeowners and renters, such as implementing changes to increase protections for renters, providing incentives to condominium builders to include affordable units and actions to discourage foreign investors in the Ontario housing market.”

Duensing says it’s not clear whether the approach will have long-term success.

The plan includes a 15 per cent non-resident speculation tax (NRST) on residential properties of up to six units in the Greater Golden Horseshoe Region, including Brant, Dufferin, Durham, Haldimand, Halton, Niagara South and North, Northumberland, Peel, Peterborough, Simcoe, Toronto, Victoria, Waterloo, Wellington, Wentworth and York.

“The intent of the NRST is to discourage investors who are speculating in Ontario’s housing market from abroad,” writes Duensing.

“The introduction of the NRST in Ontario follows British Columbia’s introduction of a comparable tax in 2016 (the Foreign Buyers Tax, or FBT, applying to the Greater Vancouver Regional District), with provincial reports demonstrating an immediate slowdown in the real estate market in Vancouver.”

He says the targets are:

  1. individuals who are neither Canadian citizens nor permanent residents;
  2. foreign corporations (i.e. not incorporated in Canada or, if incorporated in Canada, are owned or controlled by foreign entities);
  3. taxable trustees, including Canadian citizens, who hold property for the benefit of a foreign entity, but excluding mutual fund trusts, REITs and SIFT trusts.

“The NRST may also apply if just one purchaser is a foreign buyer (with the Canadian or permanent resident purchasers each being jointly and severally liable for the NRST), unless the foreign buyer is a spouse of a Canadian citizen or permanent resident, a nominee under the Ontario Immigrant Nominee Program provided the purchase is to be used as their principal residence, or a refugee,” Duensing explains.

If a foreign purchaser becomes a Canadian citizen or permanent resident within four years of the purchase, a full tax rebate can be given, says Duensing.

He says the same thing applies for someone who works full-time in Ontario for a year from the date of purchase and for an international student who enrols full-time in an academic institution for two years.

“The government of Ontario reported similar positive outcomes to that of British Columbia through new reporting provisions (Form 5.01, which is required to be filed before registering the deed), which requires additional information to be collected regarding residential purchases,” writes Duensing.

“The province estimates that for the period between August and November 2017, only 1.9 per cent of transactions in the Greater Golden Horseshoe Region involved a foreign transactor, compared to 4.7 per cent for the period of April to May 2017."

According to Statistics Canada, as of May 2017, foreign-owned residential properties accounted for 3.4 per cent of residential properties in Toronto — or 3 per cent of the total value of properties, says Duensing.

He says foreign ownership is more prevalent in multi-unit condominiums, which are not subject to the tax, than in single-family dwellings — at 7.2 and 2.1 per cent respectively.

“These values call into question whether the NRST will have an actual, tangible, long-term effect on cooling down the Ontario housing market,” writes Duensing.

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