Non-Resident Speculation Tax

In the new year, key pieces of legislation will come into play that may impact everyone from cottage owners to environmental advocates. Here’s a rundown of what to expect.

Non-Resident Speculation Tax

What it entails: Also called the Foreign Buyers tax, the NRST has existed since 2017 and applies to non-residents purchasing property in Ontario. In October 2022, the provincial government bumped it up from 20 to 25 per cent.

Who is impacted: Non-residents (outside of Canada) buying property in Ontario; it’s relevant to the second home/vacation property market.

Issues and concerns: Some real-estate experts are concerned it may deter tourism dollars that contribute to local economies, especially in vacation regions close to the U.S.

When: The increase from 20 to 25 per cent happened in October, but if you purchased property before that date, you’ll still pay the 20 per cent rate when taxes are due in 2023. Any property purchased after October 25 of this year will fall under the 25 per cent rate.

Bill 23

What it entails: The Ontario government has said they plan to build 1.5 million homes over the next 10 years. There are many stipulations in Bill 23, such as waiving the need to apply for re-zoning permits if you want to alter or add to an existing unit.

Who it impacts: Current or prospective homeowners, developers, and in particular, those who live in cottage country and/or in close proximity to conservation areas.

Issues and concerns: Some conservation authorities are concerned the bill will strip away their ability to advocate for environmentally sensitive regions and areas at risk for flooding.

When: Bill 23 was made law on November 28, but some portions of it are expected to come into effect early in the new year, as announced by the province’s Lieutenant Governor. Public consultation for the proposed regulation of conservation authorities closed on December 30.

Bill 109

What it entails: This bill amends five major pieces of existing legislation regarding infrastructure. Since local municipalities handle most building processes, this act aims to remove barriers (the cities of Toronto and Ottawa have detailed information on the bill).

Who it impacts: Developers or home builders; those looking to change, add onto or renovate their home. Since this bill is looped in with Bill 23, it’s also of interest to cottagers and those near conservation areas.

Issues and concerns: With the similar desire to strip away “red tape” as in Bill 23, the same concerns have been raised about inadvertent harm to the environment, especially ecologically sensitive areas.

When: The bill took effect on Jan. 1, 2023

Bill 39

What it entails: This bill gives the mayors of Toronto and Ottawa increased power. It will see those mayors able to move forward on some initiatives with only one-third of councillors on board, as opposed to the previous requirement of a majority (it specifically targets infrastructure).

Who it impacts: Residents of both Toronto and Ottawa and surrounding areas, home builders, developers, and prospective buyers.

Issues and controversies: Some city councillors have expressed concern that this bill would give sweeping powers to mayors to pass bills that would usually require more support. The Association of Municipalities of Ontario has spoken out against the bill, echoing similar concerns.

When: The bill technically passed on December 8, but further consultations and any material use of it is not expected until the new year.

Underused Housing Tax

What it entails: This tax targets housing considered to be “underused” stands at one per cent of the total value of the property and applies to non-resident, non-Canadian-owned property. While this tax was brought forth at the end of 2021, the deadline to file and pay it is April 2023—for the year 2022—which is why it’s relevant now.

Who it impacts: Anyone who is a non-resident, non-Canadian owner of a property considered underused or vacant housing. It may be relevant to owners in cottage country/vacation regions; depending on several factors, properties there may fall into that category (the consulting firm Ernst & Young provides a thorough explainer here).

Issues and concerns: Similar to the non-resident tax, some financial experts have expressed concern that this will deter foreign buyers from investing in Canada and bringing in tourism dollars.

When: Anyone who needs to pay the tax will have to do so by April 23, 2023, for the 2022 calendar year.

Prohibition on the Purchase of Residential Property by Non-Canadians Act

What it entails: The federal government has banned foreign buyers and corporations from purchasing specific residential property in Canada for the next two years, with some exceptions. This does not apply to residential property located within municipalities with a core population of less than 10,000 people.

Any non-Canadian or anyone who knowingly assists a non-Canadian and is convicted of violating the Act faces a fine of $10,000, and they may be forced to sell the property.

Who it impacts: Foreign citizens without a permanent resident card and corporations controlled by foreign individuals or entities. Recreational properties are not included in the ban and neither are some cottage country areas.

Issues and controversies: CREA has criticized the bill saying it will hinder Canada’s ability to attract foreign talent to its labour force.

When: The ban took effect on Jan. 1, 2023.

This article includes amendments by Megan McPhaden.

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The cost of purchasing property in Ontario has become steeper for non-residents. On October 25, the provincial government increased the Non-Resident Speculation Tax (NRST) from 20 per cent to 25 per cent. This is the second tax bump to the NRST in the last year.

The NRST applies to foreign nationals, meaning someone who isn’t a Canadian citizen or a permanent resident in the country and is purchasing or acquiring residential property in Ontario. It’s a one-time tax applied at the time of sale. The government estimates that the tax will generate $175 million this year.

The government introduced the tax in April 2017 to deter foreign buyers from purchasing rental properties and driving up housing prices. At the time, the government set the tax at 15 per cent, limiting it to the Greater Golden Horseshoe Area, which stretches throughout southern Ontario, covering Niagara Falls, Toronto, Barrie, and Peterborough.

In March 2022, the tax increased to 20 per cent and expanded provincewide. The government claimed the increase was part of its pledge to fight Ontario’s housing crises, prioritizing Canadian families and homebuyers.

The October NRST bump to 25 per cent shows that the government feels foreign buyers are still a contributing factor to the province’s housing crises.

“We are working to end Ontario’s housing supply crisis—both by building 1.5 million new homes over the next 10 years, and by ensuring Ontarians are able to access our existing housing supply,” said Steve Clark, the province’s Minister of Municipal Affairs and Housing, in a statement.

The NRST increase accompanies a series of federal government initiatives aimed at improving housing affordability, including a two-year ban on foreign investment in Canadian housing, starting January 1, 2023.

The prime target of these initiatives is foreign buyers snapping up investment properties in urban centres, but Americans looking to buy a cottage are also being caught in the crosshairs.

Sara West, a realtor in Pointe au Baril, north of Parry Sound, says that the area has a strong American cottager contingent, but real estate interest from the south has been waning in recent years. “There was a fair amount of interest until there was the pandemic, so [Americans] couldn’t come,” West says. “And then there’s the tax. I’ve heard from a few American people saying, ‘I can’t buy’.”

Attracting Americans to the area stimulates the local economy, West says. American cottagers stay for long periods of time, they use local contractors and make purchases in the town’s stores. Introducing barriers will impact that.

The two-year ban on foreign investment is also confusing the issue. West was recently working with an American couple, one of whom is a Canadian citizen, to find a cottage in the area. When she started looking into the two-year ban and how it would affect the cottage purchase, she couldn’t find any information. “We called lawyers and they couldn’t tell us,” she says.

The details of the ban have yet to be published, so it’s unclear whether it will apply to cottage properties. The Finance Department did not respond to Cottage Life’s questions about what the ban will cover.

This doesn’t mean Pointe au Baril is immune to Ontario’s affordability crisis, though. West says property prices skyrocketed during the pandemic. But that wasn’t driven by American buyers, and she doesn’t think deterring them will bring prices down. It’ll just hurt local businesses, she says.

Terry Rees, executive director of the Federation of Ontario Cottagers’ Associations (FOCA), points out that it’s not just potential American buyers being targeted, it’s also Americans who’ve owned cottages in Canada for generations.

Starting January 1, 2022, the federal government introduced the Underused Housing Tax. This is an annual, one-per-cent tax on residential properties owned by non-Canadians that are occupied for less than six months a year. Three-season cottages that aren’t winterized are exempt, but Rees says that if an American owns a four-season cottage, it’s likely they’ll have to pay the tax.

“These are our friends and neighbours,” Rees says. “It’s been [FOCA’s] contention with the feds that taxation on these people has unintended consequences because it’s a penalty that really doesn’t address housing shortages or affordability.”

Americans buying cottages in Canada represent such a small segment of the real estate market that increasing their taxes likely won’t free up housing for Canadians or cause prices to ease in urban centres, Rees says. It’ll just hurt the cottage communities that Americans are a part of or want to become a part of.

“In the north, people count on [cottagers],” he says. “There’s a lot of Americans all over the province owning waterfront property, and most people are part of the community. I don’t think that the intent should be to dissuade people from investing in our rural communities.”