With the Ontario government’s recent announcements regarding the Foreign Buyer Ban, non-resident speculation tax rate hikes, and other expansive housing initiatives for residential real estate, you might be wondering: can foreigners still buy commercial property in Ontario?
Currently, foreigners are still able to buy commercial property in Ontario. This blog post will cover the difference between residential and commercial real estate, the Foreign Buyer Ban, and the implications of purchasing commercial real estate for foreigners.
Residential vs. Commercial Real Estate in Ontario
Residential real estate covers ownership of single-family homes and rental residences with fewer than seven units in Ontario. Commercial property covers ownership of rental residences with seven or more units or properties used for businesses. Put another way, residential real estate is generally purchased and sold by individuals looking to live in or rent homes, while commercial real estate is generally purchased and sold by businesses.
Foreign Buyer Ban on Residential Real Estate Purchases in Canada
Currently, foreigners can purchase residential and commercial property in Canada (though there are certain taxes to be aware of, as described below). However, that will soon be changing.
In 2022, the federal government passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act, SC 2022, c 10, s 235, often referred to as the “Foreign Buyer Ban”. This legislation bans foreigners from buying residential property in Canada as of January 1, 2023. The ban will stay in place for two years and is set to be repealed on January 1, 2025. The purpose of this legislation, as noted by the federal government, is to help cool off Canada’s hot housing market.
However, this ban does not apply to commercial real estate. As it stands, foreigners will still be able to purchase commercial property in Ontario.
Exceptions to the Foreign Buyer Ban on Residential Real Estate
In certain circumstances, foreigners can purchase residential real estate despite the ban. An exemption may apply in the following scenarios:
- Permanent residents of Canada
- Temporary residents of Canada who satisfy prescribed conditions
- Foreign individuals who purchase residential real estate with a spouse or common-law partner who is a Canadian citizen or permanent resident
An exception may also apply in prescribed circumstances (yet to be detailed).
Purchasing Commercial Real Estate in Canada as a Foreigner
As it stands, foreigners can purchase commercial property in Canada. However, it’s important to be aware of the implications of purchasing commercial real estate in Canada as a foreigner. Namely, there are several tax considerations that you’ll want to consider well before you sign a contract. Below are just a few of the taxes you’ll want to be aware of.
Non-Resident Speculation Tax
The non-resident speculation tax (also known as the “foreign speculation tax”) applies to purchases or acquisitions of interest in residential property located in Ontario by non-residents. The tax is based on the value of the property being purchased. If, for example, a foreigner purchases a residential property for $3,000,000, they will pay an additional $750,000 (25%) for the tax.
The non-resident speculation tax does not apply to commercial property. You will not pay the non-resident speculation tax if you are purchasing:
- Land containing multi-residential rental apartment buildings with more than six units
- Agricultural land
- Commercial land
- Industrial land
For more information on the Non-Resident Speculation Tax, review the Ontario government’s publication on Non-Resident Speculation Tax.
Land Transfer Tax
The Land Transfer Tax applies to anyone who purchases land in Ontario. The tax is based on the amount paid for the property, as follows:
- 0.5% (for amounts up to and including $55,000)
- 1% (for amounts above $55,000, up to and including $250,000)
- 1.5% (for amounts above $250,000, up to and including $400,000)
- 2% (for amounts above $400,000)
- 2.5% (for amounts above $2,000,000 if the land includes one or two single-family homes)
For more information on the Land Transfer Tax, review the Ontario government’s publication on Land Transfer Tax.
Harmonized Sales Tax
The Harmonized Sales Tax (HST) is a 13% tax applied to selling goods and services – including commercial property – in Ontario. Determining whether HST can be highly fact-specific when purchasing commercial property and some exemptions apply. For example, purchasers of a commercial property may not have to pay HST depending on the type of property and intended use.
Additionally, buyers and sellers may elect to have no HST payable on a sale in certain circumstances or to choose different options for the collection of the HST (e.g., who will collect and report on the HST).
To reiterate, determining whether HST applies and which elections to make is highly fact specific. It’s important to consult with an experienced commercial real estate lawyer to discuss your circumstances and the options available to you.
For more information on the Harmonized Sales Tax, review the Ontario government’s publication on Harmonized Sales Tax (HST).
Commercial Property Tax
After purchasing commercial property in Canada, you must also pay commercial property taxes annually. Your property tax rate will vary based on the municipality and the value of your property.
You will pay the Provincial Land Tax if your property is not located in a municipality. Provincial Land Tax rates are calculated based on the value of your property (for commercial property, the rate is calculated at $300 per $100,000 of assessed value).
Buying Commercial Property in Ontario as a Foreigner: Final Notes
Regardless of your status in Canada, it’s important to be aware of the rules and taxes applicable to purchasing commercial property. As noted above, many taxes are highly fact-specific and can vary based on several factors.
Long before purchasing property in Canada, conduct your due diligence. Determining whether you are eligible to purchase the property in question and considering the costs and tax considerations associated with buying the property is critical to ensuring your deal goes smoothly. As Canada’s property laws and taxes are changing very quickly, it’s never been more critical for prospective buyers to consult with professionals before entering into a contract to purchase the property.
Contact Residential Real Estate Lawyers in Ottawa and Arnprior Representing Clients Across Ontario
At Tierney Stauffer LLP, our commercial real estate lawyers have over 70 years of combined experience representing clients in property purchase, sale, or mortgage. It is our goal to provide you with timely, efficient, and cost-effective service. Whether you are a Canadian or a non-resident looking to purchase residential or commercial property or refinancing a property, our residential real estate team is ready to assist. Contact us online or at 1-888-799-8057 to determine how we can assist you.