Starting January 1, 2023, Canada will ban foreign nationals from buying homes, with notable exemptions for permanent and temporary residents, including temporary workers and international students, as the federal government looks to cool the heated housing market, by curbing the rise in house prices, seeking to prevent them from rising so high as to push working-class and young Canadians out of the real estate market.
This new legislation will remain in force for two years, and the intent is to prevent foreign investors from “parking” their money in Canada by buying up homes without making other meaningful investments in their connection to the country; and, to make sure that houses are being used as homes for Canadian families, rather than as a speculative financial asset class.
Certain cities working to double the number of new homes being built in cooperation with their provincial and territorial governments, municipalities, and the private and non-profit sectors.
The plan is to invest in building more homes, and in so doing increase the real estate on offer, thus preventing Canadian buyers from being priced out of their real estate market.
KEY POINTS OF THE LEGISLATION
Who will be deemed “non-Canadian” under Bill C-19?
– Individuals who are not Canadian citizens or permanent residents of Canada.
– Corporations that are not incorporated in Canada.
– Corporations controlled, within the meaning of the future regulations, by foreign corporations or individuals who are not Canadian citizens or permanent residents of Canada. The Consultation Paper indicated that the threshold would be: (1) direct or indirect ownership of 3% or more of the value of equity or voting rights of a corporation, or (2) control in fact.
What exemptions will be available?
– Individuals who purchase residential property with their spouse or common-law partner if the spouse or common-law partner is eligible to purchase residential property in Canada.
– Temporary residents in Canada who satisfy conditions prescribed in the Future Regulations. The Consultation Paper indicated that students and foreign workers who meet specified criteria might be eligible.
– Other classes of persons prescribed by the Future Regulations. The Consultation Paper indicated that there would be exemptions for any persons to whom indigenous rights under Section 35 of the Constitution Act, 1982 apply.
How will pre-existing and future contracts be impacted?
– The prohibition does not apply where a non-Canadian becomes liable, or assumes liability, under a contract of purchase and sale prior to January 1, 2023.
– The Future Regulations are expected to determine what future activities will be prohibited. The Consultation Paper indicated that the prohibition will apply to acquisitions and entering into a conditional or unconditional contract to acquire legal or beneficial interests in land.
ALSO NOTE: Anti-Flipping Tax tone applied.
This year’s federal budget also speaks to the introduction of a new tax targeted at property flippers.
Currently, many taxpayers are able to sell their homes quickly by claiming capital gains and/or the principal residence exemption. With the introduction of the anti-flipping measure, Canadians who sell their home or rental residential property that they held for less than 12 months will be considered to be flipping properties. Consequentially, they will be subject to full taxation of their profits as business income. The proposed tax takes effect as a deeming provision; any profit accrued on a house sold less than 365 days after purchase will automatically be designated as income and must be reported as such for tax purposes.