3 Foreign Buyer’s Tax Loopholes the Media Isn’t Talking About

24 Jul 3 Foreign Buyer’s Tax Loopholes the Media Isn’t Talking About

Bidding wars, multiple offers, and frustrated buyers – Those are a few words to describe how Toronto’s real estate market kicked off twenty-seventeen. And after a few short months of debates and chatter, the Ontario government introduced us to 16 policies changes in an attempt to cool our hot housing market. One policy that seems to be getting the most media attention is the – a 15% Foreign Buyers Tax.   

The non-resident speculation tax was created in hopes of cooling housing investments from buyers that are not Canadian citizens, permanent residents or Canadian corporations. In other words, this tax aims to stop non-Canadians from turning a quick profit or finding a profitable place to “stash” money.

There are many mixed opinions about how this new tax will affect Ontario’s real estate market and local buyers alike. And even with continuous debates in the media, it seems as though a few key factors are being missed. Scroll below to learn more about the 3 elements of our new Foreign Buyers Tax that the media isn’t talking about.

  1. A 15% Tax on Pennies is Nothing

For most Canadians, a 15% tax on a high priced item, such as a house, may hinder a final purchasing decision. Imagine paying a $150,000 on top of a million dollar resale home – that’s a lot of Canadian coin. But when we put our currency up against some of the richest countries in the world, $150,000 isn’t all that much for a profitable investment. Without diving too deep into foreign exchange rates just know that some currencies are worth 3 to 5 times our bronze-plated dollar.

  1.  A foreign buy Tax Rebate?! Yup!

Buy now and become a resident later and you can get a rebate on that 15% tax. If a foreign investor becomes a permanent Canadian resident within 4 years of property purchase they’ll qualify for a full tax refund.

This rebate structure also applies to:

  • International Students
  • Full-time foreign workers
  • Military employees

For non-resident investors with children studying in Ontario, a property investment in the family name could be a wise tactic in getting back high spend on tuition costs.

  1.  Invest More to Pay Less

Foreign buyers interested in purchasing a multi-resident rental apartment with more than six units will find themselves jumping through the 15% tax loophole. Any property with more than a six units, along with agricultural land, commercial land or industrial land are exempt from the tax.

So what does this mean? For example sake, just say a non-Canadian resident purchases a multi-level street side property on Queen West. The bottom unit is considered commercial and the upper unit is considered one single family residence. The total cost of the purchase transaction is $1,000,000. The single family residence is valued at $400,000 and the commercial unit $600,000. The 15% tax would only apply to the $400,000 portion of the purchase. This is one lucrative loophole for foreign buyers.

So while in theory, or at a top level, 15% seems like a lot, the reality is it’s a small cost for a non-Canadian resident who is looking to make a very smart investment in a growing market.  And with the loopholes discussed above, a wise investor will find ways to maximize those loopholes to their advantage.  

If you’re interested in learning more about this, the Ministry of Finance outlines the full policy here.