Canada – Tax Developments Related to Purchases of Residential Property

Background

The Canadian government’s budget for 2022 outlined measures to increase housing affordability measures and one particular concern was foreign money coming into Canada to purchase residential real estate. The government therefore proposed restrictions that would prohibit foreign commercial enterprises (corporations incorporated outside Canada and corporations incorporated inside Canada whose shares are not listed on a stock exchange in Canada) and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property for a period of two years. The Department of Finance Canada released draft legislative proposals to implement the prohibition in Bill C-19³ which received Royal Asset on June 23, 2022, with an effective date of January 1, 2023.

Exceptions

The federal prohibition is subject to exceptions as provided for in legislation and, importantly, exempts Canadian citizens or permanent residents of Canada.

The federal prohibition does not apply to:

• a temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions;
• a protected person within the meaning of subsection 95(2) of that Act;
• an individual who is a non-Canadian and who purchases residential property in Canada with his/her spouse or common-law partner if the spouse or common-law partner is a Canadian citizen, personally registered as an Indian under the Indian Act, permanent resident, or a temporary resident within the meaning of the Immigration and Refugee Act who satisfies prescribed conditions or a protected person within the meaning of subsection 95(2) of that Act; or
• a person of a prescribed class of persons.

Also, foreign states are not prohibited from purchasing residential property for diplomatic or consular purposes and the prohibition doesn’t apply to property where the agreement of purchase and sale is entered into before January 1, 2023. 

Additional exceptions may be provided for in regulations. The federal government through the Canada Mortgage and Housing Corporation issued a consultation paper to obtain feedback on certain limited exceptions for temporary residents of Canada that meet very specific conditions (feedback period ended September 16, 2022)⁴.

Other Measures

The Canadian federal government prohibition is just one of the various measures that received approval or took effect in 2022 to address housing affordability. Another was a new 1 percent city level vacant home tax introduced by Toronto, effective January 1, 2022⁵. 

In other attempts to address housing affordability, existing legislation was modified: the Vancouver Empty Homes Tax, which was the first vacant home tax in Canada, had been introduced as a 1-percent tax in 2017 and had increased to 3 percent for 2021. In 2022 it was increased to 5 percent effective for the 2023 reference year and onwards⁶. 

The Vancouver and Toronto vacant home taxes are annual taxes that may apply when the homeowner leaves his/her home vacant. The Ontario Non-Resident Speculation Tax was modified, but unlike other measures, it is a tax that is applied at point of purchase for certain non-resident purchasers. The Ontario Non-Resident Speculation Tax was introduced in 2017 and assessed a 15-percent tax on the purchase of resident property in the Greater Golden Horseshoe Region of Ontario by certain non-residents. The tax was amended effective March 30, 2022, to increase the tax to 20 percent and to extend the tax to apply to purchases anywhere in Ontario⁷. The tax was further amended effective October 25, 2022, to increase the tax to 25 percent. There are transitional provisions for purchases entered into prior to March 30, 2022, that closed after March 30, 2022, and for purchases entered between March 30, 2022 and October 24, 2022, that closed after October 25, 2022.

Additional vacant home taxes have either been implemented or planned for future years. The City of Ottawa implemented one in 2022 while the City of Hamilton will implement one in 2024. Regional governments that have begun consultations on vacant home taxes include Peel Region and York Region in Ontario.

KPMG Note

From a global mobility perspective, the various measures that impact real estate, whether temporary prohibitions, buyer taxes or vacant home taxes, can have a profound impact on individual taxpayers as well as on companies that seek to relocate employees to or from Canada.

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