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  • Writer's pictureShawn Tessier

Vacant Home Tax, Foreign Buyer Ban, and What It All Means.

A new year brings new rules and laws that will impact future real estate transactions. With January 1st 2023 behind us, - as anticipated - the Canadian Government has released important information regarding the changes put in place.

Toronto's new annual tax on vacant residences kicked in on the 1st of January, and will have a large impact on the real estate industry. In the hopes to increase the supply of housing by discouraging owners from leaving their residential properties unoccupied, the Canadian government will require all owners of a residential property in the City of Toronto to file an online declaration of the occupancy status of their property before Feb. 2, 2023.

A unit is classified as vacant if for more than six months in the previous taxation year, it was not the principal residence of the owner or another occupant, or was not occupied by a residential tenant under a written lease for at least six months of the year.

If you are a home owner, by now you would have received a yellow slip in the mail titled "Vacant Home Tax Property Status Declaration." This is the form that is to be followed with instructions on how to declare that the property was in fact in use - this past year - as your primary residence, or as a rental property given proof of rental documents.

Those who fail to do so may be liable to a fine between $250 and $10,000. And if the home was in fact empty, there is a tax of 1% of the current value assessment to be added to the tax account.

What does this mean for you as a home buyer?

In order to protect themselves, buyers, their real estate agent and their lawyers should highly consider requesting from sellers the delivery of copies of their filed property status declaration as part of the purchase negotiations and closing process.

Should a buyer purchase a home where the seller has not filed the required declaration, or the home was in fact vacant for a least six months in the prior year, the buyer may be on the hook for the penalties discussed earlier, which will be added to the tax account.

Exemptions do apply if...
- The unit was vacant for six months or more due to the death of an owner.
- The property is undergoing renovations, and the normal use is prevented by the work given necessary permits have been issued.
- The principal resident is in hospital or a long-term care facility for at least six months during the taxation year.
- The property was purchased in the previous year.
- The unit needs to be lived in for employment purposes by it's owner for at least six months, if the owner lives outside of the Greater Toronto Area.

Canada's Housing Ban on Foreign Buyers

As of January 1st, the "Prohibition on the Purchase of Residential Property by non-Canadians Act" has taken effect

For the next two years, those who are not a Canadian citizen, permanent resident, or a person registered as an "Indian under the Indian Act", or a corporation with one or more shareholders with a "controlling share" (3 per cent), will no longer be able to acquire property in Canada - excluding 4-6 plex multi housing or more. This also excludes property listed in locations not considered a "Census Metropolitan Area", meaning area has a total population of at least 100,000 people, with at least 50,000 living in its core, while a census agglomeration has a core population of at least 10,000 people. These specific areas can be found online. There are some exceptions that I will go into below, however the criteria for these exceptions are hardly attained by most.

The ban is part of the government's "response to Canadians' urgent concerns about housing affordability" as read in a statement by a spokesperson for the minister of housing, diversity, and inclusion. Statistics Canada estimated that 3.4 per cent of all residential properties in Toronto are owned by non-residents, and slightly higher for condos at 7.2 per cent for what that is worth.

What happens if a foreign buyer breaks this law?

If a non-Canadian purchases a home under this new law, they can be fined up to $10,000 and may be required to re-sell the home they had just purchased.

The exceptions that apply are as such;

- International students purchasing a property under $500,000. However they must have lived here in Canada for five years and have filed tax returns for the same period of time. They can also only purchase one property during the two year ban.
- A non-Canadian on a work permit may be exempt, but only if they have been living in Canada for at least three of the last four years and have filed a tax return for three of the last four years.

To better understand what this all means, and also what is happening in your community, please reach out to us. We are here to provide clarity around the current real estate market conditions and these new legislations. All the more reason to speak with someone actively involved in the real estate industry on a daily basis.

All the best, and Happy New Year!

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