Canada's federal government considering foreign home buyers' tax

The Liberals said the measure will target investment properties

Canada's federal government considering foreign home buyers' tax

The federal Liberal government announced that over the next year, it will be taking steps to implement a tax on foreign home buyers and owners in a bid to improve housing affordability for Canadians.

While details were sparse, the Liberal government said that the levy will benefit first-time buyers the most as it will be targeting properties that are being used by non-Canadians to passively store their wealth.

Josh Gordon, assistant professor at the Simon Fraser University’s School of Public Policy, said that for the measure to be truly effective in its stated purpose, it should not be limited to empty investment homes.

“If [the federal government is] only trying to tax vacant properties owned by non-resident non-Canadians, then this is likely a small share of properties, and it won’t move the needle much,” Gordon said in an interview with Yahoo Finance Canada. “If they actually wanted to make an impact, they should apply the tax to properties where foreign money is primarily being used for the purchase, and households aren't paying Canadian income taxes.”

Gordon said that this would include occupied properties as well as those owned by permanent residents and citizens, “similar to the Speculation and Vacancy Tax in BC.”

At the same time, the measure should take into account the disparities in the roles that foreign-owned homes play across different regions.

“If they do introduce the tax, they should target it at major urban centres,” Gordon said. “There are many resort towns that rely on substantial foreign ownership, and those places will suffer if they apply the tax there. Choosing where to apply it, then, will involve some challenges.”

Tsur Somerville, associate professor at the University of British Columbia’s Sauder School of Business, said that such a policy requires a mixed strategy to be truly effective.

“If you’re looking to address affordability, that on its own is never going to get you to affordability. But it can certainly be part of the package of both demand- and supply-side policies,” Somerville said, citing BC’s property transfer levies that were implemented along with its speculation/vacancy tax as an example of this approach.