Foreign Property Buyer Tax Traps: Taxable Trustees and Resulting Trusts

I. Introduction

Applicable to contractual obligations arising or assumed as of January 1, 2023,[1] pursuant to the Federal Prohibition on the Purchase of Residential Property by Non-Canadians Act,[2] (the “Federal foreign buyer ban”) non-Canadian citizens, non-permanent residents, and others deemed to be “non-Canadian”[3] have been barred from purchasing residential property across Canada for two years.

Prior to this recent Federal foreign buyer ban on direct and indirect purchases, and the Federal Underused Housing Tax Act,[4] some provinces instituted taxes to discourage foreign buyer purchases of property in order to keep housing affordable, available to Canadians (both for lease and sale), and to slow rapidly rising prices.

II. Provincial Foreign Property Buyer Taxes

The provinces of Ontario and BC each introduced a foreign buyer’s tax. The tax is in addition to the ordinary land transfer tax and is calculated on the fair market value (“FMV”), or the purchase price, of the proportionate share of the purchased property.

As of October 25, 2022, Ontario’s non-resident speculation tax (“NRST”) is 25%,[5] pursuant to the Ontario Land Transfer Tax Act[6] (the “LTTA”). BC’s equivalent “additional property transfer tax” (“ATT”) remains at 20% in 2023, pursuant to the BC Property Transfer Tax Act[7] (the “PTTA”).

The Ontario NRST is payable when a foreign national, foreign corporation (collectively “foreign entities”) or a “taxable trustee”, purchases or acquires specific land in Ontario. The BC ATT is payable under similar circumstances for purchases of property in BC.

Although determining whether the Ontario NRST or BC ATT apply to foreign nationals and foreign corporations is relatively straightforward, it is more difficult when Canadian citizens or permanent resident individuals purchase real property with the help of foreign entities.