Real Estate investors looking for new opportunities are now turning to Canada to diversify their portfolios.
Purchasing land in Canada as a foreigner is allowed and there is no residency or citizenship required to complete the transaction. Restrictions currently do apply if you are looking to buy a residential property. Let’s start by clarifying what the limitations are and how they would not apply to land or recreational property outside of the metro areas.
The Prohibition On the Purchase of Residential Property by Non-Canadians Act
The act that went into effect on January 1st, 2023 refers to residential properties and its goal is to address the current housing crises in Canada. This ban has been put in place for 2 years. What is considered a “residential property” in this act? It’s defined as “a building with up to three dwelling units and can include detached homes, semi-detached houses, units in a rowhouse and residential condo units or similar premises.” The ban also applies only to properties located in metropolitan areas or defined as agglomeration. The census defines a metropolitan area as a place with a population of at least 100,000 people with at least 50,000 people living in its core. An agglomeration is a place with a core population of at least 10,000 people.
As long as the property you are considering does not fall into the above category, foreign entities can purchase land and property without limitations.
Property Taxes
Starting with a purchase transaction you’ll be obligated to pay a provincial land transfer tax. This tax varies based on different parts of a country but generally, it will be 1% on the first $200,000 and 2% on the balance. There is an exemption if this is the first property you are purchasing in the country.
Similar to the US regulation, you’ll have to pay annual property taxes that are based on an assessed property value.
Renting/Leasing Land
If you decide to rent or lease the land, you will be obligated to file taxes and with the requirements of the Canadian Income Tax Act pay 25% of the gross property rental income each year.
Financing A Property
Many Canadian banks offer mortgages and home equity loans similarly to what is practiced in the U.S. but they do tend to be more conservative. Generally, a 35% down payment is required from a non-resident. You’ll also need a Canadian bank account set up for a certain amount of time before applying. Traditional lenders are generally the first place to start as they will more likely offer lower interest rates. Private lenders can be more flexible when it comes to financing foreign entities.
You don’t need to live in the country to own the land, and property taxes and interest expenses are tax-deductible. The benefits of owning real estate in Canada are similar to owning real estate in the United States.
Selecting the Location
When looking at provinces and preferred land locations, keep in mind that the majority of all land in Canada is held by the government and is known as Crown Land. This amounts to approximately 89% or all territory. The name Crown Land is still used today, as Canada is part of the British Commonwealth.
It is best to work with a local real estate agent once you establish your overall outline for the land purchase. Involving a lawyer may become beneficial to make sure you take advantage of all possible deductions while following the local tax regulations. Canadian real estate market will continue to become more competitive so getting ahead of the game and purchasing land now may be a good strategy for a very profitable long-term investment.
