Foreign investors exploiting loopholes in the foreign buyer tax

by Neil Sharma20 Nov 2017
Foreign buyers, most of whom are Chinese, have found ways to circumvent the foreign buyer tax, often with the help of their children.

“I’ve seen 20-year-olds pay for condos with cash,” Jay Flemming, a sales agent with Core Assets Real Estate, told REP. “Their parents give them the money to get it out of the country.”

Foreign students can be exempted from paying the foreign buyer tax—likely because they were nominated under the Ontario Immigrant Nominee Program— so their parents purchase Toronto properties in their name for them to ostensibly live in, however, Flemming says that doesn’t always happen.

“Many of them don’t live there,” he said. “They’ll rent apartments or live in dorms. It’s truly an amazing tax loophole—just have a kid in school over here.”

Eugene Kaplun, a sales agent with REMAX Infinite, says many of his foreign clients are Chinese and, as another strategy used to circumvent the 15% foreign buyer tax, buy preconstruction units that won’t be closed for another five years, by which time they expect to have received their permanent resident cards, thus precluding them from being taxed.

However, not everybody buys property in their children’s name. According to Kaplun, many foreign buyers don’t mind paying the 15% tax up front because there are ways to get it back. Although it is possible to recoup the tax money through the condo unit’s appreciation in the five or so years before closing, Kaplun says it would be too much of a gamble because the market could go south, and that there other ways to guarantee a tax reimbursement.

“The good case scenario is there are loopholes,” he said. “If you have been studying and you get a permanent resident card, you can apply to get the 15% tax you paid back.”

Another strategy used to dodge the foreign buyer tax is to apply for the Quebec Immigrant Investor Program (QIIP), whereby immigrants provide the government interest-free loans in exchange for citizenship. The rest of Canada had a similar program that’s now defunct, but Quebec has jurisdiction over its immigration and has kept the QIIP operational.

“We’re a stable economy and there’s room to expand, so they see it as an opportunity,” said Kaplun. “Canadian computer science is among the best in the world, our banking system is one of the safest in the world, and so they feel comfortable parking their money in Canada. They want their kids to grow up in a stable environment with free health care and great education, so Toronto is the place to go for them.”


Related stories:
Has Vancouver’s 15% tax done its job?
Foreign buyer influence now better understood

COMMENTS

  • by Shawn 11/20/2017 11:47:36 AM

    There are lots of good points in this article however what is missing in this article is, foreigners can buy “The Quebec Immigrant Investor Program (QIIP)” for under $200,000 which is approximately equal to 15% of 1.25 million dollar property and also as soon as they get their immigration they can move to any other Providence and keep studying or leaving somewhere else, this way they don't have to pay for their kids health insurance as well as the education comes much cheaper. So because of that is well worth paying upfront to get their immigration.

    But, don't worry as we seen in the past few years our politicians are doing their best to make sure that the Canadian who are trying to buy house would not be able to afford it (by changing Mortgage roles and adding to CMHC insurance) and making it easier for the foreigners to come in and buy properties under different name as their family or friend and also avoid paying capital gain tax when they sell and make a good profit as they usually claim that the property was their residential home.

  • by Joan 11/20/2017 12:17:44 PM

    I agree. I feel more and more that my government does everything it can to cause me grief.
    What I also find is most people don’t even bother to think about the repercussions of the various new policies, but they will, as soon as they need to buy, sell, refinance or retire. I am livid about the imposed stress test coming in January, and, still really finding it hard to believe they brought in that 15% tax without even grandfathering pre-existing contracts. It’s like they just don’t really consider any of the repercussions. Knee jerks and money grabs.
    I’ve written Ottawa and the OSFI head. But it won’t help, they just do whatever they want and don’t care what the constituents want or think. It’s frustrating to be a Canadian.

  • by DP 11/20/2017 1:04:13 PM

    I am waiting for the City of Toronto to hit up local tax payers who have lived here for years for more tax money due to the significant loss in Land Transfer Tax. The Wynne Government lied to everyone when she said the foreign property purchases were about 10% and it fact it is under 5%. Based on these lies EVERYONE decided to sit on the fence and not purchase homes.
    The market took a tumble by mid April and sales volume is significantly lower. Purchases on condos and townhomes, where the bulk of purchases are currently will not fill the land transfer income gap.
    The Asian buyers have many ways of getting money out of their country and are doing so. The wealthy will just add the 15% tax ontot the price of the home as the cost of doing business.
    To add to this mess buyers will have stricter mortgage rules as of January 1, 2018. This will further slow up home sales as first-time buyers won't qualify for the prices of home in Toronto.

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