Ontario Announces 15% Tax on All Foreign Buyers
The Ontario Liberal government is moving forward with their decision to slap a 15% tax on all foreign home buyers.
Called the Ontario fair housing plan premier Kathleen Wynne says this plan has been in the works for some time. Kathleen Wynne stated: “ The skyrocketing cost of renting or buying in Ontario and the Greater Golden Horseshoe, in particular, is the unwanted consequence of a strong economy with a promising future. When young people can’t afford their own apartment or can’t imagine owning their own home, we know we have a problem.”
The plan comes after Toronto home values soared 33% from the previous year, the average home in Toronto now costing $916,567.00 which is twelve times the average household's gross annual income. Prompting concerns of a real estate bubble, as well as reports of skyrocketing rental prices in Toronto.
In a report by CBC news in March 2017, it was revealed it now takes an average of 15 years for someone to save 20% for a downpayment for a home in the GTA. Compared to 1976 when it took 6 years, and more recently up until 2010 it took 12 years. Causing many in their 20’s 30’s and 40’s living in Toronto to accept that they will rent forever.
Effective immediately the 15% tax is subject to all property purchased in the Greater Golden Horseshoe area of southern Ontario which is currently home to nine million Canadians. The tax is not meant to target those wishing to make Ontario their home, this tax is intended to target those who are not looking to raise a family in Ontario and simply looking to make a profit.
The Government will ban fortune hunters from “assignment flipping” in the pre-construction housing market. Investors who put multiple deposits on units in pre-construction prices, usually condominiums and then sell the title for profit before the building is complete. The government is labeling these investors as “property scalpers” and blame them for driving up prices. The Ontario fair housing plans aim is to curtail this behavior.
Lessons Learned from Vancouver
In Vancouver two of the key issues stemming from the property tax is 1) who will be taxed 2) how the generated revenue will be spent?
Currently, the B.C government is being sued in a class action lawsuit filed not even 2 months after the tax was passed. Jing Li the lead plaintiff in the suit and is one of an estimated hundreds of affected buyers in the process of purchasing a home when the tax was rolled out. In July Li placed a deposit of $56,000 on her home, two weeks later when the tax was rolled out Li was left to decide either forfeit her deposit or pay an additional $84,000 in taxes for the property. Many of those affected felt caught in the middle as the tax was rolled out with no warning. Li’s Lawyer Luciana Brasil argues that the province does not have the power to impose taxes based on nationality, also noting that the provincial government is stepping outside its jurisdiction. Brasil highlights that Ottawa has already negotiated treaties including NAFTA that grants international citizens equal treatment as consumers. If the suit is successful B.C will have to repay all revenue made from the tax.
Who is affected by the tax?
Initially, when the tax was introduced in Vancouver it applied to anyone who was neither a citizen of Canada or a permanent resident. Anyone purchasing a home after August 2nd in 2016 was subject to the 15% tax. Several members of the B.C New Democrat party argued that the tax not only discriminated against foreigners it also left many loopholes for foreign investors. The fear that the new bill penalizes new immigrants working and living here, and that once they receive their citizenship or permanent residency the province will be right back to where they started, rebating those that are now citizens and permanent residents. These fears proved founded when in January Christy Clark B.C’s premier went on to announce that anyone with a work permit who paid income taxes in B.C was exempt from the tax and the rebates began.
How will the Revenue be spent?
B.C’s finance minister Mike de Jong has allocated the foreign buyer's tax revenue for affordable housing and rental support programs when the tax was introduced. This caught the eye of Toronto councilors as the city struggles with a waitlist of more than 97,000 households waiting for subsidized housing. Those on the list can expect a long wait as the average wait for a one bedroom in subsidized housing is currently 9 years, and the average wait for a 3 bedroom home will now be more than 7 years. Councilors are advocating for the city to the majority of the tax revenue to improve access to affordable housing.
What are some of the main points to understand:
- All home buyers will now have to reveal their citizenship, place of residence, and if the property will be used as a primary residence or investment.
- Buyers will have to reveal the names of any numbered company purchasing property and disclose if they are acting as a representative for the eventual owner.
- The 15% foreign buyers tax will not apply to refugees and immigrant nominees and full rebates will be open to those who receive their citizenship down the road.
- Skilled workers in the Ontario worker nominee program will be exempt from this tax.
- Any International student who has been enrolled in a full-time program for a minimum of two years would receive the full rebate
- The fair housing plan proposes taxing vacant homes to push the owners to sell unoccupied properties or to rent them out.
- Assessing surplus land owned by the province that could potentially be used to build affordable housing and rental units.
- Providing incentives to any developer building rental accommodations targeting the middle and low-income bracket, the key incentive will be an upfront provincial rebate if development cost charges.
- Rental increases are now capped at 2.5% with some exceptions.
- The government will make amendments to the Residential Tenancies act to clarify the text of leases and provide compensation to tenants who were evicted.
- Municipalities could potentially gain the flexibility to use property taxes as a policy tool to influence development.