What is the foreign homebuyers’ tax?



The Canadian residential housing market has experienced unprecedented growth over the past few years. According to the Zillow Home Value Index for July 2021, the average value of a home in Canada is $75,805. These huge price increases have become a cause of concern, with many fearing that the market could experience a price bubble. One of the factors behind the sharp spike in prices is speculative purchases from foreigners. As a result, many Canadians have been unable to buy homes.


In response to this, Canadian policymakers have implemented a foreign homebuyers’ tax. This move is aimed at dissuading investors that don’t reside in Canada from purchasing property to engage in speculative real estate investing. Also referred to as the non-resident speculation tax, this new tax was highlighted in a fiscal document published in November 2020.


Who is liable for the foreign homebuyers’ tax?

Here are the categories liable for the foreign homebuyers’ tax:

  • Foreign nationals: This refers to anyone that is not a Canadian resident. For instance, if you live in the U.S. or Europe and you purchase residential property in Canada, you will be required to pay the foreign homebuyers’ tax

  • Foreign corporations: These are companies incorporated outside of Canada. In some situations, even a firm incorporated in Canada can be classified as a foreign corporation. In addition, a corporation whose shareholders are all outside of Canada will be liable to pay this tax

  • Taxable trustees: This refers to trusts where one or more trustees are foreign nationals. The foreign homebuyers’ tax also applies in a case where the beneficiary of the trust is a foreign national.

Exemptions to the foreign homebuyers’ tax

There are several exemptions to the foreign homebuyers’ tax. Such exemptions allow someone that is otherwise liable to avoid paying the extra fee.

For example, anyone that buys residential real estate as a refugee in Canada will be exempt from this tax. Another way to avoid paying foreign homebuyers’ tax is via spousal exemption. If a foreigner buys real estate jointly with their husband or wife – who is either a permanent resident or Canadian citizen – they will not have to pay the tax.


Calculating the non-resident speculation tax

The non-resident speculation tax is simply 15% of the purchase price of residential property. Let’s say you are a foreigner buying a single-family home for $650,000. You will be required to pay a non-resident speculation tax of $97,500.

$650,000 x 15% = $97,500


Conclusion

Can foreigners purchase real estate in Canada? The answer is yes, but they are required to pay the foreign homebuyers’ tax. Get in touch with us to find the best investment properties in Canada.





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