New Laws that Affect Buyers and Sellers
At the start of 2023, several new government policies impacting buyers and sellers came into effect. Here is a breakdown of three of the most noteworthy.
Foreign Buyer Ban
Non-Canadians are prohibited from purchasing residential properties, including detached and semi-detached homes, rowhouses, townhouses and condominium units, for a period of two years, until 2025.
Temporary residents who are working towards permanent residency, refugee claimants, international students and those with a spouse or common-law partner who is a Canadian citizen or permanent resident are exempt, as long as they meet certain criteria.
Recreational properties, such as cottages or lake houses, and homes in municipalities with a population of less than 10,000 are also not subject to the ban.
Those who contravene the Act, or any person that knowingly assists a non-Canadian in contravening the foreign buyer ban, can be fined up to $10,000. In addition, a court may order the sale of the property purchased.
The Prohibition on the Purchase of Residential Property by Non-Canadians Act was implemented in an effort to make housing more accessible to Canadians.
Profits arising from the sale of a residential property, including a rental property, sold on or after Jan. 1, 2023, that was owned for less than 12 months are subject to full taxation as business income.
Exemptions include when the sale is related to death of the owner, divorce or separation, disability or illness, insolvency or other major life events.
Under the new Residential Property Flipping Rule, the principal residence exemption is not available, meaning the entire profit will be taxed as 100% business income.
If the owner loses money on the sale, the loss cannot be claimed as a business loss.
New legislation is being considered to extend the anti-flipping tax to assignment sales. An assignment is where the original buyer of a property allows another buyer to take over the rights and obligations of the Agreement of Purchase and Sale before the original buyer closes on the property.
Vacant Home Tax
Applicable only in the City of Toronto, this is an annual tax to be levied on vacant residences.
In 2023, the tax is 1% of a home’s Current Value Assessment (CVA). For example, the tax is equal to $10,000 on a property with a CVA of $1,000,000.
When buying or selling a home, the purchasers and sellers are responsible for ensuring the occupancy declaration is filed, regardless of whether or not the residence is vacant.
A property is considered vacant if it was not used as the principal residence by the owner or any permitted occupants, or was unoccupied for a total of six months or more, during the previous calendar year.
Exemptions include a property that is left unoccupied due to the death of the owner or when renovations are taking place.
Additional proof of a home’s occupancy may be required if an audit is conducted.
Failure to declare a property’s occupancy status may result in it being considered vacant. It would therefore be subject to the tax.
If a declaration is falsified or breaks tax bylaws, the homeowner may face up to $10,000 for each violation.
The goal of the Vacant Home Tax is to discourage owners from leaving their homes empty in an effort to ease the city’s low housing supply.