On June 23, 2022, Parliament passed the Prohibition on the purchase of residential property by non-Canadians Act.
Coming into force January 1, 2023, this Act:
- It does not apply to Canadian citizens and permanent residents.
- It applies to non-Canadians directly or indirectly purchasing residential property in Canada for a period of two years.
- It applies to residential property, including detached houses or similar buildings of one to three dwelling units, as well as parts of buildings such as semi-detached houses, condominium units, or other similar premises.
- It applies to direct or indirect purchases of residential property, including purchases made through corporations, trusts or other legal entities.
- Establishes penalties for non-compliance applicable to non-Canadians, as well as any person or entity knowingly assisting a non-Canadian in violating the prohibition.
What is Residential Property?
The Act defines residential property as any real property or immovable property located in Canada. There are some constraints on the nature and amount of real estate. More information, including the breadth of the prohibition and exclusions, is likely to be disclosed soon.
Who is a non-Canadian?
- A non-Canadian is defined in section 2 of the Act as:
- an individual who is neither a Canadian citizen, an Indian registered under the Indian Act, nor a permanent resident;
- a corporation formed under laws different than those of Canada or a province;
- a corporation formed under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange for which a designation under section 262 of the Income Tax Act is in force and is controlled by a person referred to in paragraphs (a) or (b); and
- a prescribed person or entity. (non-Canadian)
The foreign buyers’ tax
Property acquisitions made by non-Canadian citizens or permanent residents will be taxed at 25% (up from 20%) beginning October 25, 2022. This is the second rise this year; in March, the NRST was raised from 15% to 20%.
ALL purchasers must be Canadian citizens or permanent residents if ownership is shared. Even if only one is not, the NRST will be charged for the entire property's value. There are exceptions, like with the foreign buyer ban: individuals with a permanent residence application pending and non-Canadian spouses of Canadian citizens are either excluded or eligible for rebates.
Only residences acquired after October 25 are subject to the increased tax.
A few other things international buyers should know
- Purchasing property in the United States has no effect on immigration or citizenship status. To become a Canadian citizen, you must meet the requirements of Canadian immigration rules.
- In Canada, you can receive a mortgage. The best financing alternatives need a 35-50% down payment. The lender will almost certainly need proof of income and credit history.
- Income tax is levied on rental income. All non-residents who make rental income in Canada must submit an income tax return; consulting with an accountant who is familiar with overseas investors is strongly advised.
- Working with a registered Canadian REALTOR is essential: As an overseas buyer, a trained agent will assist you in navigating the complicated world of Canadian real estate.
For more details: https://laws-lois.justice.gc.ca/eng/acts/P-25.2/page-1.html