Chinese Interest Is Up In The GTA, But They're Not Interested In Speculation
Some media outlets recently reported that interest in Canadian real estate among Chinese buyers increased 30 per cent in the first half of this year, compared to a year earlier. This suggests that the foreign-buyer tax imposed in Ontario has not dampened the Chinese appetite for real estate in the Greater Toronto Area.
On April 20, 2017, the Ontario government announced plans to impose a 15 per cent tax on foreign nationals in order to cool the real-estate market. The Non-Resident Speculation Tax ("NRST") was implemented on April 21, 2017.
As of April 21, 2017, the NRST applies to all transfers of residential real estate located in the Greater Golden Horseshoe ("GGH") region by (a) individuals who are not citizens or permanent residents of Canada, (b) foreign corporations, and (c) taxable trustees. The GGH includes the geographic areas listed here.
Sales of residential real estate in the Greater Toronto Area plummeted after the NRST came into effect. However, some believed that this was the result of domestic home buyers simply deciding to take a step back because of the uncertainty caused by this measure. Uber-wealthy Chinese buyers certainly did not appear to be concerned by the NRST, since sales of houses selling for more than $4 million continued to climb even after it was implemented. Recent data now suggests that even middle-class Chinese may still have a strong interest in buying Canadian real estate.
Of course, anyone who is familiar with the NRST will know that it was never intended to tax all foreign buyers, only those who did not intend to reside in Ontario. There were several exemptions/rebates built into the NRST, which were designed to achieve this objective. A brief discussion of these exemptions/rebates appears below.
Limited exemptions to the NRST are available in the following situations:
- Provincial Nominees: A foreign national who is nominated under the Ontario Immigrant Nominee Program ("OINP") at the time of the purchase or acquisition, and the foreign national has applied or certifies that they will apply to become a permanent resident of Canada;
- Protected Persons (Refugees): A foreign national on whom refugee protection is conferred (protected person) under the Immigration and Refugee Protection Act at the time of the purchase or acquisition; or
- Spouses: A foreign national who jointly purchases residential property with a spouse, who is a Canadian citizen, permanent resident of Canada, provincial nominee, or protected person. The term "spouse" includes either of two persons who are married to each other, or who are not married to each other but who have cohabited: (1) continuously for a period of not less than three years; or (2) in a relationship of some permanence, if they are the natural or adoptive parents of a child. To qualify for the spousal exemption, the foreign national (and, if applicable, their spouse) must certify that they will occupy the property as their principal residence. The spousal exemption will not apply if the property is also purchased with another foreign national who is not a provincial nominee or protected person.
Clearly, the above exemptions are very limited and will only apply to a small number of foreign nationals.
Of course, there are also several rebates available, which should apply to a larger number of foreign nationals. Although they will still be required to pay the NRST at the time of their purchase/acquisition, eligible foreign nationals may seek a rebate of the tax at a later date. Rebates of the NRST may be available in the following situations:
- A foreign national who becomes a permanent resident of Canada: A foreign national who becomes a permanent resident of Canada within four years following the date of the purchase/acquisition may apply for a rebate.
- An international student: A foreign national may apply for a rebate if they are a student who has been enrolled full-time for a continuous period of at least two years from the date of purchase or acquisition in an "approved institution" at a campus located in Ontario. Full-time means enrolled in at least 60 per cent (if the individual does not have a disability) or 40 per cent (if the individual has a disability) of what the approved institution considers a full course load for the academic year.
- A foreign national working in Ontario: The foreign national has legally worked full-time under a valid work permit in Ontario for a continuous period of at least one year since the date of purchase or acquisition. Full-time means an employment position that requires no fewer than 30 hours of paid work per week over a 12 month period and no less than a total of 1,560 hours of paid work over that period.
The foreign national must exclusively hold the property, or hold the property exclusively with his or her spouse. The property must also have been occupied as the foreign national's principal residence (and, if applicable, his or her spouse's principal residence) for the duration of the required period, which must begin within 60 days after the date of the purchase/acquisition.
Eligible foreign nationals must apply for the rebate within four years after the day on which the NRST becomes payable, except in the case of a foreign national who becomes a Canadian permanent resident. In such cases, the foreign national must apply within 90 days of becoming a Canadian permanent resident and not more than four years and 90 days from the date that the NRST became payable.
The inability of the NRST to dampen Chinese interest in Toronto-area real estate may suggest that such buyers are either: (1) not concerned about the additional costs associated with the foreign buyer tax, or (2) not engaged in real-estate speculation, at least to the extent that some may have initially believed. In any event, Chinese interest in the Greater Toronto Area will likely continue.
Source: Huffington Post
Thinking of buying or selling a property, or have a question regarding the real estate market? Fill out the form below and I'll get back to you promptly.