Non-Resident Speculation Tax increase deters Americans looking to cottage in Ontario

Queen's Park Photo by Shutterstock/Diego Grandi

The cost of purchasing property in Ontario has become steeper for non-residents. On October 25, the provincial government increased the Non-Resident Speculation Tax (NRST) from 20 per cent to 25 per cent. This is the second tax bump to the NRST in the last year.

The NRST applies to foreign nationals, meaning someone who isn’t a Canadian citizen or a permanent resident in the country and is purchasing or acquiring residential property in Ontario. It’s a one-time tax applied at the time of sale. The government estimates that the tax will generate $175 million this year.

The government introduced the tax in April 2017 to deter foreign buyers from purchasing rental properties and driving up housing prices. At the time, the government set the tax at 15 per cent, limiting it to the Greater Golden Horseshoe Area, which stretches throughout southern Ontario, covering Niagara Falls, Toronto, Barrie, and Peterborough.

In March 2022, the tax increased to 20 per cent and expanded provincewide. The government claimed the increase was part of its pledge to fight Ontario’s housing crises, prioritizing Canadian families and homebuyers.

The October NRST bump to 25 per cent shows that the government feels foreign buyers are still a contributing factor to the province’s housing crises.

“We are working to end Ontario’s housing supply crisis—both by building 1.5 million new homes over the next 10 years, and by ensuring Ontarians are able to access our existing housing supply,” said Steve Clark, the province’s Minister of Municipal Affairs and Housing, in a statement.

The NRST increase accompanies a series of federal government initiatives aimed at improving housing affordability, including a two-year ban on foreign investment in Canadian housing, starting January 1, 2023.

The prime target of these initiatives is foreign buyers snapping up investment properties in urban centres, but Americans looking to buy a cottage are also being caught in the crosshairs.

Sara West, a realtor in Pointe au Baril, north of Parry Sound, says that the area has a strong American cottager contingent, but real estate interest from the south has been waning in recent years. “There was a fair amount of interest until there was the pandemic, so [Americans] couldn’t come,” West says. “And then there’s the tax. I’ve heard from a few American people saying, ‘I can’t buy’.”

Attracting Americans to the area stimulates the local economy, West says. American cottagers stay for long periods of time, they use local contractors and make purchases in the town’s stores. Introducing barriers will impact that.

The two-year ban on foreign investment is also confusing the issue. West was recently working with an American couple, one of whom is a Canadian citizen, to find a cottage in the area. When she started looking into the two-year ban and how it would affect the cottage purchase, she couldn’t find any information. “We called lawyers and they couldn’t tell us,” she says.

The details of the ban have yet to be published, so it’s unclear whether it will apply to cottage properties. The Finance Department did not respond to Cottage Life’s questions about what the ban will cover.

This doesn’t mean Pointe au Baril is immune to Ontario’s affordability crisis, though. West says property prices skyrocketed during the pandemic. But that wasn’t driven by American buyers, and she doesn’t think deterring them will bring prices down. It’ll just hurt local businesses, she says.

Terry Rees, executive director of the Federation of Ontario Cottagers’ Associations (FOCA), points out that it’s not just potential American buyers being targeted, it’s also Americans who’ve owned cottages in Canada for generations.

Starting January 1, 2022, the federal government introduced the Underused Housing Tax. This is an annual, one-per-cent tax on residential properties owned by non-Canadians that are occupied for less than six months a year. Three-season cottages that aren’t winterized are exempt, but Rees says that if an American owns a four-season cottage, it’s likely they’ll have to pay the tax.

“These are our friends and neighbours,” Rees says. “It’s been [FOCA’s] contention with the feds that taxation on these people has unintended consequences because it’s a penalty that really doesn’t address housing shortages or affordability.”

Americans buying cottages in Canada represent such a small segment of the real estate market that increasing their taxes likely won’t free up housing for Canadians or cause prices to ease in urban centres, Rees says. It’ll just hurt the cottage communities that Americans are a part of or want to become a part of.

“In the north, people count on [cottagers],” he says. “There’s a lot of Americans all over the province owning waterfront property, and most people are part of the community. I don’t think that the intent should be to dissuade people from investing in our rural communities.”

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