Real Estate

Trudeau government to close foreign-buyers loophole

  • Last Updated:
  • Oct 5th, 2016 5:59 pm
63 replies
Deal Fanatic
Dec 5, 2009
5197 posts
2953 upvotes
Could be the final dagger in Vancouver but not sure this will have much impact in Toronto where people confuse foreigners with immigrants who actually live in the homes they buy. As for people flipping, most were already paying tax. Then again this house of cards just needs a catalyst and some fear in the market and then who know. The government wants to try and architect a soft landing for housing which has never been done in history.
Deal Addict
User avatar
May 25, 2008
1397 posts
588 upvotes
Toronto
Good move by the Trudeau government, but it could be too late for those Canadian citizens who want to legitimately purchase a home for themselves and their families. It will take another housing crash, something that has not happened since the late 80's / early 90's before we reach a level of affordability for the average GTA citizen.
Member
Aug 11, 2016
498 posts
151 upvotes
Will have no impact in Toronto haven't see anyone here buying up multiple million dollar properties and leaving them vacant, because of the distance and climate in the TO market most are still local residents of buying rental properties or hoping for a flip.
Member
Mar 5, 2009
369 posts
124 upvotes
GiOBoY wrote:
Oct 3rd, 2016 10:11 am
Yep, RIP to 20% YoY price gains... but I think we'll still manage to see 5-10% YoY gains going forward.
We have only had 5-10% annualized YoY gains. We never had 20% annualized YoY gains. By annualized, I mean looking at real estate prices from 1970->2016. It is not a good idea to look at prices from 2008->2016 and gauge that as future gains. It's more logical to look at prices from multiple decades.
Jr. Member
Jul 4, 2013
193 posts
165 upvotes
Toronto, ON
Afv1234 wrote:
Oct 3rd, 2016 10:47 am
Will have no impact in Toronto haven't see anyone here buying up multiple million dollar properties and leaving them vacant, because of the distance and climate in the TO market most are still local residents of buying rental properties or hoping for a flip.
We are by no means a mirror of Vancouver, but there are plenty of shenanigans going in in this market, too. Fact is, Canada was ripe for the picking, and we've been a "go to" country for many criminal groups and other shady individuals looking to wash and hide their cash.

For example, doesn't it seem odd that several office/retail units in newer condo developments are being bought and paid for, yet continue to sit empty for months, and even years? Or maybe I just don't understand how business works. :)

There is a lot of "migration capital" out there, and it's certainly not outside the realm of possibility to assume that it has infiltrated our market as well.
Deal Expert
User avatar
Apr 21, 2004
51242 posts
15880 upvotes
I doubt it's going to stop non-residents from claiming residency and capital gains free transaction since the house is proof they have ties with Canada and are deemed residents. How does CRA enforce world-wide taxation if these people owned their corporations overseas and are not on the payroll?

There is more widespread abuse in a second scenario, according to experts. That is when the breadwinner
claims to be a resident of Canada but then doesn’t report their worldwide income to the Canada Revenue
Agency, as required by law. Because they claim to be residents, they can sell Canadian properties in their
name, taxfree,
even if they spend little or no time in Canada.
If these homeowners make their living in China, experts said it’s difficult for anyone to determine what they
actually earn, because it’s next to impossible to get tax records from that country, even though China and
Canada have a longstanding
tax treaty. As a result, experts say, these wealthy people get away with claiming
little or no income on their Canadian tax returns, while selling homes taxfree.
Tax accountants and lawyers who handle these cases told The Globe this can be done with multiple
properties, primarily because the CRA doesn’t require any resident to report any sale of a principal
residence. Taxpayers simply have to fill out a form, but keep it for their own records, instead of submitting
that information with their taxes.
Experts have urged Ottawa to require taxpayers to report the sale of all homes, even if they are claiming the
principalresidence
exemption.
Deal Addict
Apr 4, 2013
1274 posts
404 upvotes
Two major changes:

1. Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years. Current rate is 4.64%.

2. An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence. The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed.
Deal Expert
User avatar
Apr 21, 2004
51242 posts
15880 upvotes
cbr663 wrote:
Oct 3rd, 2016 12:10 pm
Two major changes:

1. Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years. Current rate is 4.64%.

2. An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence. The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed.
#2 is the problem. Any non-resident is deemed a resident when he/she has ties to Canada (house, bank accounts, driver's license, health card). So buying the said residence makes almost every buyer a deemed resident. This is especially appealing to those who own their own businesses overseas and can mask their real annual income.

http://www.cra-arc.gc.ca/tx/nnrsdnts/cm ... y-eng.html

As to how the Federal Government will fix this, I have no clue. Looks nice on paper but not sure about implementation unless they actually fix the description of a deemed Canadian resident.
Deal Addict
Dec 6, 2006
4450 posts
1105 upvotes
Toronto
cbr663 wrote:
Oct 3rd, 2016 12:10 pm
Two major changes:

1. Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years. Current rate is 4.64%.

2. An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence. The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed.
#2... does that basically mean having to pay tax on capital gain on RE for "non-resident"?
what's the definition of resident tho, does CRA check thoroughly?
Deal Expert
User avatar
Apr 21, 2004
51242 posts
15880 upvotes
boyohboy wrote:
Oct 3rd, 2016 12:24 pm
cbr663 wrote:
Oct 3rd, 2016 12:10 pm
Two major changes:

1. Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years. Current rate is 4.64%.

2. An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence. The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed.
#2... does that basically mean having to pay tax on capital gain on RE for "non-resident"?
what's the definition of resident tho, does CRA check thoroughly?
The thing is, everyone can claim they are deemed residents when they have a house, health card (who gives these up?), bank account and driver's license, and biggest of all - family in Canada.

Interesting to follow how they amend the definition of deemed residents. Feds are trying to fix problem too quickly without really thinking about the policy's effectiveness.

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