In its 2021 budget, the Canadian government proposed a tax on vacant homes owned by foreign property owners. It’s intended to cool the housing market, which some say is being fueled in part by foreign investors who don’t reside in the country. But for those who own vacation homes in Canada, the new proposals are raising concerns. Pierre Letourneau, High Net Worth Planner with TD Wealth, joins Kim Parlee to discuss who this new tax may affect.
- In its latest 2021 budget, the Canadian government has come out and proposed a tax on vacant homes which are owned by foreign property owners who do not reside in the country. Now, the idea, of course, was to try and cool down the housing market, which some say is, in part, fueled by foreign investors.
But the new proposals have some who have vacation homes here in Canada worried, which brings us to our next question. And here to answer it is Pierre Letourneau. He is a high net worth planner with TD Wealth. He joins us from Mississauga for this Ask MoneyTalk.
Pierre, here is today's question. "We are Americans who have a vacation home in Muskoka that we may visit once or twice a year. Would we need to pay the new proposed foreign owner tax?"
- Thanks, Kim. So yeah. In its most recent budget, the federal government proposed a tax on residential real estate that is considered vacant or underused, and is owned by nonresidents or non-Canadians.
So the new tax would be effective January 1 of 2022 and would result in a 1% annual levy on the value of the home. All owners of a residential property in Canada, other than Canadian residents or Canadian citizens, would be required to file an annual declaration to describe the current use of the property. And there could be significant penalties for not filing this declaration.
- OK, it sounds as though the people who ask this question would be subject to this. But I guess I want to ask, too, are there any exemptions to this tax? And again, we should add, it hasn't happened yet. This is people-- this is the announcement. It still has to go through what it needs to go through.
- Right. Exactly. It's just a proposal at this point. So at the moment, it's not really clear. It's possible that properties in certain regions that aren't contributing to the housing crunch that we're experiencing would be exempt. But we're not sure at this time. There could also be an exemption for properties that are leased for a certain period of time during the year.
- Do we know when we're going to find out with a little more certainty what's going to happen?
- Well, the tax is set to be effective January 1 of next year. So hopefully, they'll figure things out by then. But at this time, the government's only announced that it will provide some parameters in the coming months and launch the consultation period, where it will reach out to stakeholders to get their comments on those parameters. And so the parameters would include different information, like details on what would be considered a residential property, what is considered vacant or underused, the value on which the tax would apply, how the tax would apply where the property is owned by multiple individuals or by a corporation, and details on compliance and enforcement mechanisms, as well, too.
So the consultation will probably also consider whether properties in certain regions, like smaller communities or tourism areas-- whether those properties would be exempt.
- Pierre, always a pleasure. Thanks so much.
- Thanks for having me.
- That's Pierre Letourneau from TD Wealth. And if you have any questions, you would like to ask MoneyTalk a question, you can send an email to firstname.lastname@example.org with the subject line "Ask MoneyTalk." Ask your question. We'll find someone to answer it. And you can find those questions answered on MoneyTalkGo.com.