Trade wars could impact real estate: Starting in 2022, Americans who own Canadian summer homes may be required to pay a 1% tax on underutilized, foreign-owned homes.

WASHINGTON – Canada is proposing a 1% tax on underutilized or vacant real estate owned by foreigners, thereby potentially foisting thousands of dollars of annual costs on Americans who own properties north of the border that they haven’t been able to visit for more than a year because of the COVID-19 pandemic.

The tax, which would be implemented in 2022 if adopted as part of the Canadian budget for that year, is aimed largely at foreign investors who have been snapping up condos in Toronto and other booming Canadian cities. But cottage owners from the Buffalo area and others who own property in Canada are worried they will end up paying much more to own homes they can’t even use at this point.

“My initial impression is: ‘So they want to kick us when we are already down?’” said JoAnn Boehm of the Town of Tonawanda, whose parents built a cedar cottage in Ridgeway in 1963 that she still stayed in regularly until last year’s COVID-19-inspired border shutdown. “Many of us are not rich or high rollers. … The only reason our properties are underused/vacant is because of COVID restrictions.”

Introduced last month and still subject to revision, the Canadian proposal also drew the ire of Rep. Brian Higgins, a Buffalo Democrat who this week wrote to the Canadian Ambassador to the U.S., Kirsten Hillman, to complain about the move. Higgins – a member of the tax-writing Ways and Means Committee – told Hillman that if Canada enacts the tax, he will reciprocate by pushing for a similar tax on Canadian property in the United States.

“I have to defend my people,” Higgins said in an interview. “And if you’re going to impose a 1% federal tax on an owner of a cottage in Crystal Beach, Ontario – well, there’s a lot of Canadian property owners in Ellicottville.”

Chrystia Freeland, Canada’s deputy prime minister and minister of finance, unveiled the tax when presenting the Canadian government’s proposed budget last month.

“The idea here is that homes are for Canadians to live in,” she told reporters. “They are not assets for parking offshore money.”

The budget proposed by Canada’s Liberal government says the 1% tax would raise $700 million in Canadian dollars – or about $569 million in U.S. currency – over four years.

In a section called “Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners,” the budget proposes that foreigners who own property in Canada file an annual declaration with the Canadian government starting in 2023 that details how the property is used.

The annual 1% tax would be assessed “on the value of non-resident, non-Canadian owned residential real estate considered to be vacant or underused,” the Canadian budget document said. However, the budget doesn’t specifically define what an “underused” property is. The Canadian Ministry of Finance indicated in the budget that it will further outline details of the tax after a public comment period called a consultation.

“The consultation will consider whether, how and when the proposed tax would apply in smaller, resort and tourism communities,” the budget document said.

People with vacation homes in such communities are clearly worried, though, that the tax will apply to them.

“The U.S. and Canada are supposed to have the closest relations of any two countries in the world,” said retired Buffalo businessman Anthony H. Gioia, who has owned a summer home at Thunder Bay, Ont., for more than 30 years. “And this isn’t how you usually treat your best friend.”

Gioia, a former U.S. ambassador to Malta, said the tax would likely discourage Americans from buying real estate in Canada. He also said it would prompt a retaliatory tax like the one Higgins is suggesting, which would be painful for the considerable number of Canadians who own winter properties in Florida.

The Canadian tax would certainly be painful for John Adams, a retired magazine publisher who spent most of his life in Washington state and who bought a vacation home on Vancouver Island in 2015. The property has been appraised at $398,000 – meaning he would have to pay an additional $3,980 annually if the tax were imposed. That’s a 370% increase from what Adams is currently paying.

Adams and his wife usually spend several months of a year on the secluded property, enjoying Canada’s western wilderness the way Buffalonians have long enjoyed Canada’s beaches.

“I got the impression that most cottage owners in Buffalo are not wealthy offshore business entities parking speculative money in Canadian real estate,” Adams – who brought the tax to the attention of the Buffalo News – said. “They are couples in their 60s and 70s that just want to enjoy what time they have left enjoying their second homes.”

Asked for more details about the proposed tax, a Canadian Ministry of Finance official largely parroted the Canadian budget statement about the tax and the coming consultation period, adding: “More details will be released in due course.”

Richard S. Halinda, a Fort Erie-based attorney who represents Americans who buy property in Canada, said he would be raising concerns about the tax with the Canadian government.

“My understanding is that the genesis of this is from the large number of empty condo units in downtown Toronto and Vancouver that sit empty and no lights on as result of being purchased sight unseen by foreign buyers,” he said. “These purchases have increased the price of these units and have taken them out of the rental pool and ownership pool for people who actually live in Toronto and Vancouver.”

The situation on the Niagara Peninsula is far different, Halinda said. There, many Americans own cottages that have been in the family for decades. Now, though, those Americans stand the possibility of getting hit by a Canadian tax aimed a very different type of foreign real estate owner.

“This is another example of trying to use too wide a brush when trying to paint,” Halinda said.

© 2021 The Buffalo News (Buffalo, N.Y.). Distributed by Tribune Content Agency, LLC.

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Author: kerrys