A colleague of mine emailed me this essay last week.

I was blown away.

Not only by the sheer amount of content, which was twelve pages in a PDF, but also because of the research involved.  Thirty-seven footnotes, for one thing.  But sourcing a variety of newspapers, interviews, staff reports, legal journals, and more.

Last week, I offered my opinion on the new vacant home tax here in Toronto, but this is much, much better.

Enjoy!

“Vacant Homes & Empty Minds”

Nothing to See Here

At the start of 2022 Toronto introduced new municipal taxes on vacant homes (i.e. properties which were unoccupied for six months or more during the previous calendar year). The city now requires every property owner to complete an annual declaration that the property was either occupied by a combination of owners and tenants or the owners qualified for a tax exemption.

The exemptions include: (i) death, provided a death certificate is provided; (ii) an owner in care, provided a signed letter from a recognized health care facility is given; (iii) a 100% sale of the property to a 3rd party, provided a copy of the land transfer deed is forwarded; (iv) employment purposes for those with a principle residence outside of the GTA; this requires an employer letter attesting to the need and proof of residence outside the GTA; (v) a court ruling prohibiting occupancy, provided a copy of the court order is given; (vi) required repairs/renovations which make the dwelling uninhabitable for at least 6 months of the tax year; this option requires that all permits have been issued and the city’s Chief Building Officer grants an opinion that all repairs are being carried out “without unnecessary delay.”

Unfortunately this narrow list ignores many situations including short term rentals, vacant listed properties which take more than 6 months to sell (or fail to sell), properties uninhabitable due to fire, flood or other calamity, home owners absent for non-medical reasons such as being imprisoned or out of the country for more than six months, and multiple property exemptions of less than six months each in a single calendar year (e.g. 5 months owner occupied plus 2 months vacant plus 5 months being renovated, would still be classified as a vacant dwelling and require a tax payment since no single use lasts the minimum six months).

Despite the flaws, all Toronto residential property owners must now file a declaration by February 2nd, 2023 and once a year thereafter. Failure to file on time generates fine of $250, while a false declaration could lead to a penalty of up to $10,000 plus back taxes. If an owner fails to file, the property will be deemed vacant and a tax will be imposed at 1% per year of the property’s MPAC value. 1 4% to 5% of declarations are expected to be audited each year.2

Tax lawyer Noah Sarna argues that this is very flawed program which will result in mass confusion, inaccurate tax collection and lots of court action. Drawing upon Vancouver’s experience, Sarna contends that the Ontario cities are making big, avoidable mistakes, including assuming that: (a) all landlords and tenants have mail sent to their permanent dwellings; (b) all landlords and tenants own documents containing their dwelling address; (c) all tenants forward mail to their landlords; and (d) all landlords and tenants communicate in English or French.

The lawyer believes one of the biggest problems will occur around renovations. Under the tax bylaw, Toronto requires renovation permits to be issued, not just applications filed. The problem is that “permit offices are notoriously backlogged” and most properties can’t be occupied while an owner awaits a permit, making the 6-months-in-one-calendar-year vacancy period unrealistic. Also troubling is the need for owners to swear that the Chief Building Officer believes that they are renovating “without unnecessary delay.” Since it is unclear how the officer will define “unnecessary” or “delay,” this requirement will create significant conflict.3

Sarna is also very worried about the impact on property purchasers, since they will be responsible for the tax if sellers fail to file, provide inaccurate information on their declaration or don’t pay the tax owed. In a recent tweet he argues that “any realtor acting for a buyer in Toronto, who doesn’t address the new vacant home tax in an offer, is inviting a possible negligence claim. Buyers can assume a vacant home tax liability like unpaid property tax, only worse: they will have no clue it’s coming.

By now, it should be standard practice that, at a minimum, all offers require the seller to provide (a) a copy of any completed and filed property status declarations; and (b) a statutory declaration confirming each declaration is true and correct. Additionally, buyers should be advised that if the city disagrees with a declaration and assesses the tax, they may be on the hook for the tax in any event. So, the seller should also (c) agree to indemnify the buyer in that case, or allow for a holdback (my italics & bold).”4

Sarna also notes that Toronto’s bylaw is currently drafted in such a way that, under certain circumstances, there is no statute of limitations. If this flaw is not corrected, then come 2026 a Toronto home buyer could theoretically be on the hook for 4 years of skipped seller vacant tax payments plus fines. As time passes, the open period will grow by one year each January, making it next to impossible to calculate a full holdback acceptable to a seller, even if market conditions allowed a buyer to negotiate such a holdback.

While title insurance may provide Toronto’s property purchaser with some help, it’s worth noting that the BC Real Estate Association has come up with 22 separate clauses to deal with different scenarios which may arise under Vancouver’s empty home tax.5 Given Toronto’s poorly drafted bylaw and untested administrative regime, things are about to get very messy in Hogtown. Even more troubling the city is planning to raise the tax rate from 1% to 5%, while MPAC property values, which are still based on January 1st, 2016 values, are set to be reset on January 1st, 2024. Both changes will significantly increase vacancy tax amounts.

Unfortunately, this vacancy tax mess is going to be a growing problem elsewhere as more and more Ontario cities seek new revenue and a very visible means of virtue signaling to their electorate that they care about housing affordability. The city of Ottawa’s empty property tax starts this year, while Hamilton, London, Windsor, Halton, Durham, Peel and York are gearing up to launch their versions in 2024 or shortly thereafter. It seems only a matter of time before Barrie and other major Ontario cities inflict similar madness on their home owners.

To add to the confusion and home owner woes, the new federal Underused Housing Tax, which overlaps with the municipal vacancy measures, also begins this year. Under this new tax all non-resident, non-Canadian individuals and corporations who own a property on December 31st, 2022 must file a return by April 30th, 2023, even if they qualify for a tax exemption. In addition, Canadian residents and citizens acting as a trustee for a non-resident, non-citizen, all Canadian incorporated companies which aren’t listed on a stock exchange, partnerships, estate trustees, and select other organizations must file.6

Failure to file attracts a minimum penalty of $5,000 for an individual and $10,000 for a corporation. Owners will be charged a penalty of 1% of the taxable value7 if their property is not occupied by a permitted party for at least 180 days in a given calendar year. The new tax may be avoided if a “non-arms-length” party pays “at least fair rent” (via a written contract) and leases the property for at least 180 days. However in this situation the tenant or property manager must also hold back 25% of the monthly gross rent and forward it by the 15th of each month to the Canada Revenue Agency.

Many forms also need to be completed. If the tenant/property manager fails to remit the withheld funds in a timely manner they will face an array of penalties. Alternatively, a foreign landlord could have their lawyer or other agent apply for permission to withhold 25% of net rental income. The designated agent would be responsible for remitting the withheld funds every month. Under this option a landlord would also need to file an annual tax return.8

An exemption to the Underused Housing tax also applies if the owner, their work-permit holding spouse/partner, and/or their child enrolled in a “designated” learning institution inhabit the dwelling for 180 days. A foreign or non-resident owner with a Canadian or legal resident spouse/partner or a child living in the dwelling is also excused. New builds, seasonal dwellings, properties undergoing extensive renovations, properties where an owner has died and those rendered uninhabitable due to a disaster or other hazard are also excluded, while special rules apply to properties with multiple owners or owners holding multiple properties.

The tax also doesn’t apply to new owners in the year of the property was acquired.

Finally, properties inside a prescribed area which are occupied by a foreign, non-resident owner or their spouse/partner for 28 days are exempt. These areas include places outside census metropolitan areas (CMAs) or census agglomerations (CAs) with populations of 30,000 or less. CAs with more than 30,000 and located outside a population centre, are also exempt.

According to the 2021 census, 13 of Ontario’s 18 census agglomerations, including Midland, Collingwood, Essa and Wasaga Beach, contain fewer than 30,000 people and qualify for the exemption. Orillia, with 33,405 inhabitants, falls just outside the threshold.10 Oro-Medonte, Adjala-Tosorontio, Clearview, Tiny, Tay, Severn, Ramara, Muskoka and much of Dufferin are also outside CAs and CMAs and therefore would count as prescribed areas and, provided the minimum annual occupancy condition was met, would also be exempt.11

If experience is anything to go by, these new vacancy tax programs are about to generate enormous administration for very little gain. Consider Vancouver: on November 30th, 2021 the city classified 1,398 properties as “vacant”, adding up to 0.7% of their 196,441 dwellings. While 0.7% seems like an insignificant outcome for such a large program, this figure is actually inflated as it includes “properties declared vacant, determined vacant through the compliance process, and deemed vacant (properties that have not made a property status declaration).”

Despite having more than five years to work out the bugs in their program, Vancouver officials also continue to misclassify a significant number of occupied or exempt properties as vacant. In 2021 the city reviewed 1,071 complaints about the assigned vacancy status or around 1 complaint for every 1.3 “vacant” dwelling. 911 of the complaints (or 85%) were accepted by the city at the initial appeal stage or by its review panel, a proportion which suggests some very serious flaws in the program’s current design and management. 12 A recent Globe and Mail article titled “Vancouver’s vacancy tax is capturing some of the wrong people” supports this view, with its anecdotes of 3 owners caught up in the Kafkaesque system.13

To get a broader perspective, it’s worth noting that from the tax’s first year in 2017 through 2021 Vancouver’s housing stock rose by 10,403 units (5.6%), while the number of tenanted dwellings climbed by 10,411 (22.2%). Over the same period the volume of vacant” properties fell by 1,140 (44.9%). Supporters argue that the steep fall in “vacant” dwellings plus the sharp rise in rental stock prove that the program is working. Others disagree – pointing out lots of change occurred in the era, including the city’s clamp down on short term rentals, the introduction of B.C.’s foreign buyer tax and the launch of B.C’s provincial vacancy tax.

A closer look at Vancouver’s data should shed some more light. In November 2020 some 716 (28%) of the 2,538 dwellings labelled vacant in 2017 had entered the city’s rental pool. An additional 636 properties (25%) became owner occupied, either because they were sold, the original owner moved in or a misclassification was corrected. The status of 237 properties changed when the owners obtained an exemption or no longer needed to file a declaration, while 602 dwellings (24%) remained classified as “vacant.” Between November 2020 and November 2021 another 361 properties shifted from “vacant” to rented, bringing the full number of newly tenanted units over the first 4 years of the program to 997.

In 2021, the city of Vancouver had 57,181 tenanted properties, 10,247 more than they had in 2017. In the most generous interpretation of the vacancy tax data, 9.7% of the (net) increase in rentals can be attributed, at least in part, to the empty home tax. The total of 997 new rental units spread over four years isn’t a meaningless number, but it does work out to a tiny 1.7% of the full rental pool making it hard to conclude that this program has been effective.14

It also doesn’t seem terribly efficient. According to the most recent annual report, the city spends around $2.5 million annually on the program and incurred a one-time start-up cost of $7.5 million, implying that over the program’s first 4 years Vancouver spent just over $17,500 per added rental unit.15 Although this is much cheaper than building from scratch, it’s hard to believe that this is the best approach to adding rental stock.

The city’s housing data reveals one other interesting item: “vacant “properties are moving down-market. In 2019 the typical “vacant” condo was valued at 59% more than the average Vancouver condo, while the mean “vacant” single family house was assessed at 52% more than the average single family house. In 2020 the premium fell to 43% for condos and 23% for single family dwellings, while by 2021 the ratios were down to 11% (condos) and 6% (singles). 16 This trend implies the vacancy fine is no longer a luxury tax as the city’s costliest home owners have made arrangements to avoid the tax, while the poorly advised middle class remains captured.

It will be interesting to see if this shift continues given the big changes coming in 2023. These include: (i) the tax is going up to 5% from 3%; (ii) strata (condo) boards can no longer ban rentals, meaning that Vancouver’s vacancy tax strata exemption no longer exists. 506 condo owners took advantage of this option in 2021.17They will now need to pay up or find another exemption; (iii) B.C. new property assessment values come into effect. These are July 1st, 2022 values based on sales from strong market sales from several months earlier. These factors mean the tax burden is growing much heavier. More political and legal fireworks seem inevitable. From this remove it’s really hard to see why the vacancy tax is worth it.

Empty Minds: Xenophobia Triumphant While the Underused Housing Tax is intended to be a permanent measure targeting existing foreign, non-resident property owners, the federal government is also implementing a two year ban on property purchases by foreigners. Starting January 1st, 2023 realtors, mortgage brokers, notaries, lawyers, residential developers and many others face fines up to $10,000 per occurrence if they “knowingly” help an ineligible non-Canadian buy an ineligible property. This is in addition to the fines which will be charged to the foreign buyer.

Law firm Bennett Jones notes the legislation language is so broad that sellers who counsel, induce, aid or abet a non-Canadian to directly or indirectly purchase a property, knowing the non-Canadian is banned from buying, face a fine. Moreover if a selling or buying corporation commits an offence under the Act, related parties, including employees, directors and agents may be fined, even if the corporation has not been prosecuted or convicted.18 Rival Dentons contends that a seller who “consents to an assignment to a non-Canadian” is exposed. 19

To make matters far worse, MLT Aikins believes that “buyers and sellers subject to the ban will still be legally required to comply with their contractual obligations, despite any contravention of the Act.” These lawyers argue that the sales agreement will remain valid and an illegal buyer will be forced to close their illegal purchase or face the threat of being sued by the seller. Facilitating parties, such as realtors, mortgage brokers and lawyers will be doubly damned as they will face the risk of legal action from a disgruntled seller if the illegal sale fails to close and the possibility of steep fines from assisting an illegal purchase if it does close.20

If this wasn’t bad enough, the Minister can also apply to the courts for a judicial sale order, which would unwind part of the illegal purchase by forcing the illegal buyer to resell for no more than they originally paid. The regulations also specify the order in which the new sale funds must be disbursed: a) “costs of the sale, including costs incurred by the Minister to bring the court order and any unpaid fines by the non-Canadian”; b) claims from others, except the non-Canadian, “who are entitled to receive the proceeds of the sale in amounts and priorities that the superior court may determine;” c) the non-Canadian, provided they get no more than they originally paid;” d) the Receiver General, who gets any residual.21

At this stage it’s unclear if legal fees, real estate commissions, mortgage breakage fees and other normal transaction costs fall into category a) or b) or even if there will be any funds left to disburse after the federal government recovers it’s costs upfront. It also seems likely that a forced sale property may incur a stigma, which, depending upon market conditions may make obtaining the original sale price optimistic. Finally it seems probable that some illegal buyers will try to cover the imposed loss by suing their facilitators, claiming they provided bad advice.

Not surprising given the uncertainty, Dentons has advised real estate practioners to “consider whether purchase and sale contracts ought to include protective provisions, such as representations and warranties from purchasers regarding whether they are non-Canadians under the Act, restrictions on assignments to non-Canadians, and other remedies (for example, indemnities or termination rights) that apply if the purchaser is a non-Canadian.” 22

Sharing Dentons’ concern, the Canadian Real Estate Association (CREA) has recently strongly urged realtors to ensure all individual buyers complete and sign a brand new 2 page declaration that confirms that the buyer is either: (i) “not a Non-Canadian, as defined by the Act; OR (ii) a Non-Canadian, as defined by the Act,” however one who is excused from the ban due to an allowable exemption. The permitted exemption is to be specifically listed on the form and the buyer claimant is supposed to provide their realtor with evidence of their qualification. CREA has also urged realtors to obtain the evidence of a buyer’s status before “assisting or advising them on the purchase of a property.” 23 As this is a departure from Fintrac’s money laundering rules, in which real estate agents need to verify a purchaser’s identity no later than time a transaction transpires CREA’s recommendation is unlikely to be universally followed.

CREA’s form is however a valiant stop gap measure and the association should be commended for its effort, especially given that the federal government didn’t see fit to release the new regulations until December 21st, less than 6 business days before the new law came into effect. However, a number of very important matters were not dealt with in CREA’s form. These need to be incorporated by realtors into their processes on a go forward basis. The items include:

• Entities formed or incorporated under laws other than those of Canada or the provinces, are banned from buying ineligible residential properties. In addition a domestic entity which is not listed on a Canadian stock exchange and who is directly or indirectly controlled by an ineligible foreigner or which has 3% or more of its equity or voting shares carried by an ineligible foreigner, is unable to buy. This is a very low ownership threshold, which is certain to create many problems.24z
• International students may buy provided they: (i) are enrolled in a “program of authorized study at a designated learning institution”; (ii) filed all required income tax returns for five tax years before the purchase; (iii) were physically present in Canada for 244 days in each of the five calendar years before the purchase; (iv) haven’t purchased more than one property; (v) don’t pay more than $500,000 for their new purchase.
• Temporary workers may buy provided they: (i) hold a work permit or are otherwise authorized by the federal government to work in Canada; (ii) filed all required income tax returns for at least three of the previous five tax years before the purchase; (iii) haven’t bought more than one property.
• Foreign governments may purchase consulates or other diplomatic properties and foreign nationals may buy personally if they hold a passport that “contains a valid diplomatic, consular, official or special representative acceptance issued by the Chief of Protocol for the Department of Foreign Affairs, Trade and Development”.
• Refugee claimants may buy if their claims have been accepted by the federal government or they have been issued a temporary resident visa based on the Minister’s belief that it is appropriate for Canada to provide them a safe haven.
• Landed immigrants (aka permanent residents) are exempt, as are otherwise ineligible foreigners who purchase property with their common law partner or spouse provided the common law partner or spouse is a permanent resident, Canadian citizen, person registered under the Indian Act, eligible temporary resident or formally accepted refugee.
• An otherwise ineligible foreigner may acquire a property in Canada if the acquisition is the result of a gift, death, divorce, separation, the exercising of a security interest or secured right by a secured creditor (e.g. calling a mortgage) or the “transfer under the terms of a trust that was created prior to the coming into force of the Act.”
• Residential properties with more than three units are exempt from the ban. 25 However, according to Bennet Jones, vacant land zoned for residential or mixed use development falls within the prohibition, even if the vacant land holds far more acreage than required to hold a triplex, duplex or single family home. 26
• The ban does not impact properties located outside a census metropolitan area (CMA) or census agglomeration (CA). Unlike the Underused Housing Tax’s exemptions, all Canadian CAs are covered by the ban. In our area this means that Oro-Medonte, Adjala-Tosorontio, Clearview, Tiny, Tay, Severn, Ramara, Muskoka, Haliburton and much of Dufferin, Grey and Bruce counties are open to all foreign buyers.27

The myriad conditions, exemptions and scenarios possible under the foreign buyer ban make it very difficult to navigate and will leave realtors and their buyer and seller clients exposed. Despite what the federal government contends, most real estate agents are unfamiliar with most of the documents needed to validate foreigner buyer eligibility. It also seems probable that counterfeit documents may emerge over the two years the ban is in effect, adding to the difficulties. In addition, since not all Canadian citizens have passports or birth certificates, many locals will be unable to quickly and easily prove their citizenship. It’s also unclear how many buyers falling under the Indian Act are able and willing to prove it.

Since a rigid adherence to CREA’s recommendations will block many innocent buyers, while confirming foreign buyer eligibility will remain challenging, it’s probable that some realtors will just accept the risk of a $10,000 fine as the cost of doing business, while others will opt for an alternate screening technique and run the risk of a dealing with a complaint to the Ontario Human Rights Commission.

Adding to the difficulties, the Ontario Real Estate Association (OREA) has yet to update its standard clauses and forms, forcing individual realtors to use the CREA form and, with the assistance of legal counsel, draft custom conditions and clauses to protect their clients and themselves. Since not all realtors and lawyers will have access to the same information, confusion and tension seems inevitable for at least a few months until CREA and/or OREA provide more detailed guidance. In the meantime, since sellers are also exposed, their real estate lawyers will be forced to assume at least some of the validation/administrative burden.

Quite apart from the federal foreign buyer ban, a real estate lawyer will also need to be very closely involved with the real estate transaction in order to pay the Ontario government’s non-resident speculation tax (NRST), which charges a 25% surcharge on the purchase price in all applicable foreign real estate transactions throughout the province. This surtax is in addition to the ordinary land transfer tax, making it extremely expensive for most foreigners to buy property in this province, even assuming the federal government allows them.

Adding to the misery, Ontario’s tax has different eligibility and exemption criteria than the federal program. For example, the provincial tax applies on residential properties with up to six units rather than just three dwellings, while corporate foreign ownership is based on a foreigner holding 25% of voting shares or equity rather than Canada’s 3%. Also in Ontario “gifts” to foreign entities and seasonal dwellings are taxable, unlike the national program. Certain landed immigrants and refugees don’t need to pay Ontario’s NSRT, but temporary workers and students must. Rebates are also available in Ontario for some qualifying foreigners who become permanent residents of Canada within four years of the purchase. Many other differences exist between the two programs, making legal advice mandatory. 28

Ontario’s massive taxes together with the federal ban are sure to scare off most foreign buyers and do long term damage to our country’s reputation. It’s also likely that constitutional challenges will emerge this year as one or more provinces takes the federal government to court over their intrusion into a matter of provincial jurisdiction. One or more disgruntled foreigners are also bound to launch legal action over Ottawa’s violation of the Charter of Rights and casual override of the Citizen Act, which specifically permits non-Canadians to buy property on the same basis as Canadian citizens. It’s also possible that Queen’s Park’s aggressive 67% hike in the NRST last year will bring them into the docket, as angry foreigners and their allies fight this apparent violation of the Ontario Human Rights Code and other provincial laws.

The outcome of such legal action is far from certain. Constitutional expert Steven Pearlstein believes that both the federal government and the provinces have strong arguments to make over whose laws are paramount29, while a related BC class action suit provides mixed messages. In 2019 B.C. Supreme Court Justice Gregory Bowden found that B.C.’s foreign buyer tax fell under provincial rather than federal jurisdiction, even though the tax deterred non-Canadians from living in British Columbia. Bowden acknowledged that while foreign national were discouraged from buying property, they were not actually prohibited from buying. So Canada’s Citizen Act ban on discrimination against non-Canadian property buyers didn’t apply. The justice also declared that the case did not violate the plaintiff’s rights under the Canadian Charter of Rights and Freedom because the discrimination she suffered was based on immigrant status, a legally permitted form of bias, rather than citizenship, an illegal one.30

This case was upheld by the appeals court in 2021, in part because the court accepted the Province’s argument that the tax measure was necessary to make housing more affordable and by inference that it was reasonable to consider the foreigner share of home purchases as a affordability metric. The court noted that between June 11th and July 10th 2016, foreigners accounted for 9.7% of residential sales in the Greater Vancouver area, with the cities of Burnaby (17.7%) and Richmond (18.2%) most heavily impacted. The presiding judge even declared that “the extrinsic evidence shows that the tax would not have been imposed had the housing affordability problem in the GVRD not reached such a critical point,” implying that if the foreigner share was significantly smaller, the tax wouldn’t exist.31

It will be interesting to see how the courts revisit this argument in 2023 or 2024 in the inevitable new law suits given the loss of international buyers. According to property tax records, the share of foreign buyers in Greater Vancouver plummeted from 9.7% in June/July 2016 to 3% in 2017, to 1% in mid-2018 and to less than 0.5% in the back half of 2020.32

Across the province, a similar downturn occurred and continued into mid-2022. After reaching a peak of 9% in July 2016, foreign purchases in British Columbia dropped to 3% in 2017, 2.4% in 2018, 1.7% in 2019, 1.4% in 2020 and 1% in June of 2022.33 According to the BC Realtors Association 7,136 properties were sold in June 2022, implying that international buyers bought a mere 71 properties. By November total province-wide sales had fallen to 4,512, meaning that if the 1% share still holds, foreigners were involved in 45 sales that month.34

Data from British Columbia’s Ministry of Finance shows that the foreign insignificance extends to existing home owners. In 2018, the inaugural year of the province’s Speculation and Vacancy Tax, 4,597 foreign home owners were scooped up by the new tax. This worked out to around 0.3% of BC home owners. By 2020 the number was down 52% to 1,594 (0.1% of owners) as foreigners sold or rented their properties or found another way to qualify for an exemption.35

While there is little doubt that the aggressive tax policies in British Columbia and Vancouver have made foreign buyers a near extinct species in that province, Ontario’s situation is a bit tougher to evaluate because the Ford administration has been (mostly) unwilling to publish performance data on the NSRT.

What is known is that in its first ten weeks of its existence, Ontario’s original foreigner tax nailed 3.2% of buyers in the Greater Golden Horseshoe (GGH), with Toronto (857 sales), York (556), Peel (176) and Halton (135) accounting for more than four-fifths of all payers. More distant spots like Durham (86 sales and 1.7% of local buyers), Simcoe (60 sales & 1.1% of purchasers) and Waterloo (73 buys & 1.7% of buyers) didn’t contribute very much. Outside the GGH, only Ottawa with 161 foreign/non-resident buyers (adding up to 2.2% of sales) even showed up on the radar.36

As insignificant as these numbers were in the spring of 2017, they soon shrunk (i.e. between February 2018 and March 2019 only 1.8% of GGH buyers paid the tax).37 Despite the paucity of payers, in early 2022 the Ontario government raised the NSRT from 15% to 20% and extended it province-wide. In October 2022 they raised the rate once more to 25%. While no data has been provided to justify these moves or track their impact, it’s very hard to believe that more than 1 in 100 Ontario residential sales are going to foreigners. It may be much less.

In 2016/17 the new foreigner taxes shocked foreign buyers in GTA and GVA and disrupted local housing rallies. This time around the handful of international buyers still active in British Columbia and Ontario have been subject to years of tax onslaught and the novelty of persecution has worn off. With few international buyers left in either province, it’s difficult to view the federal buying ban and Ontario’s massive tax hikes as anything but meaningless housing theatre, geared to please the ignorant mobs still baying for blood.

While it seems hard to believe that anyone in Ottawa or Queen’s Park really think these measures will generate any benefits, both governments are imposing some real costs on Canadians. Ottawa’s misguided buyer ban, in particular, will create pain for real estate practioners and their clients who very soon now will need to decide if they’re going to take this circus seriously. For anyone in doubt, get some legal advice. This looks like it’s going to be a long two years.

Ken Davenport
Salesperson
Sutton Group Incentive Realty Inc., Brokerage
Barrie, ON

Footnotes:

1 Vacant Home Tax, Toronto.ca, 12/28/2022
2 Toronto Vacant Home Tax Raises Questions over Implementation, storeys.com, N. Sarna, 11/21/22
3 Ontario’s New Vacant Home Taxes: The Blind Spots, Perspectives on Tax Laws & Policy, ctf.ca, N. Sarna, 9/22
4 Twitter, N. Sarna, 12/21/22
5 Standard Forms Spotlight: Using BCREA Clauses to Address Vancouver’s Empty Home Tax, bcrea.bc.ca, S. Smith, 7/30/20
6 Underused Housing Tax, Canada.ca, 12/20/22
7 Defined as the greater of the value assessed for tax purposes or the most recent sale price in the prior year
8 Filing and reporting requirements, Canada Revenue Agency, Canada.ca, 1/18/22
9 Underused Housing Tax Act, mnp.ca, 11/9/22
10 Population in Dwellings, 2021 Census, Statistics Canada, 4/27/22
11 Note: none of this tax information should be construed as tax or any other form of advice, especially since the regulations around the various vacancy taxes and other government measures are new and untested in the courts. In most cases new administration procedures are just coming into effect and revisions are likely.
12 Empty Homes Tax Annual Report, City of Vancouver, 12/22
13 Vancouver’s vacancy tax captures some of the wrong people, The Globe and Mail, D. Dyck, 11/12/22
14 Empty Homes Tax Annual Report(s), City of Vancouver, 12/22, 12/21, 12/20, 12/19, 12/18 & 12/17
15 This calculation assumes that the vacancy tax is the only reason “vacant” properties became tenanted. This is unlikely to be true for most new landlords, meaning the true per unit cost is almost certainly higher.
16 Empty Homes Tax Annual Report(s), City of Vancouver, 12/22, 12/21, 12/20, 12/19, 12/18 & 12/17
17 Empty Homes Tax Annual Report, City of Vancouver, 12/22
18 Canada’s Ban on Foreign Home Buyers Soon in Effect, bennettjones.com, M. Lewis, et.al., 10/31/22
19 Canadian government enacts two year ban on purchases of real estate, dentons.com, S. Blary, 10/13/22
20 It’s Not Just Foreign Buyers Who’ll Be Impacted by Canada’s Residential Housing Ban, mltaikens.com, S. Veylan & D. Moir, 11/8/22
21 Prohibition on the Purchase of Residential Properties by Non-Canadians, Canada Gazette, 12/2/22
22 Canadian government enacts two year ban on purchases of real estate by non-Canadians, dentons.com, S. Blary, 10/13/22
23 Federal Government Releases Regulations on Prohibitions on The Purchase of Residential Property by Non-Canadians Act, news2me.crea.ca, 12/21/22
24 Under FINTRAC money laundering rules the ownership reporting threshold is 25%.
25 Prohibition on the Purchase of Residential Properties by Non-Canadians, Canada Gazette, 12/2/22
26 New Rules for Foreign Home Buyers in Canada, M. Lewis, et.al, bennettjones.com, 12/21/22
27 Note: none of this tax information should be construed as tax or any other form of advice, especially since the regulations around the various vacancy taxes and other government measures are new and untested in the courts. In most cases new administration procedures are just coming into effect and revisions are likely.
28 Non-resident speculation tax, Ministry of Finance, Ontario.ca, 4/6/22
29 Expect court challenges to law banning non-Canadians from buying property, thestar.com B. Aaron, 11/11/22
30 Foreign Buyers Tax Survives Constitutional Challenge, remonline.com, D. Rotfleisch, 8/12/21
31 Li v. British Columbia, canlii.org, 6/29/21
32 Foreign home buyers have nearly vanished from Metro market, C, Chiang, biv.com, 4/1/21
33 Foreign buyers stuck to the sidelines through surging market, Western Investor, P. Mitham, 7/28/22
34 Statistics Release, British Columbia Real Estate Association, 7/12/22 & 12/13/22
35 Speculation and Vacancy Tax Act: Review of Act and Regulations, BC Ministry of Finance, 6/22
36 Land Transfer Tax: Additional Information Collected, news.ontario.ca, 9/14/17
37 New stats show fewer foreign residents buying GTA homes, M. Crawley, cbc.ca, 5/15/19

Okay, so the next time you blame me for writing lengthy content, just remember this post!

Those of you with keen interest read it all, and then maybe skimmed it over again.

Others aren’t as interested, and I understand that taxation isn’t exactly the sexiest topic.

But while the media obsess over finding a person who will put their name and photo in an article, regardless of whether that individual supports or opposes the tax, we need research and insight like this essay to explain what the real implications of the tax are.

Opinions welcome, if you’re not all tired from reading, that is…