Buying Canadian Property As A Foreigner

Canada has long been an attractive destination for international property buyers, drawn by its stable economy, high quality of life, diverse cities, and perceived long-term value in real estate. However, the landscape for foreign real estate investment has become significantly more complex, particularly in 2025. The Canadian government, in a concerted effort to address housing affordability for its citizens and permanent residents, has implemented and extended a series of measures that directly impact non-Canadians looking to purchase residential property. Navigating these regulations, understanding the associated taxes, and managing financial aspects like local bank accounts are crucial for any foreign investor considering the Canadian market.

 

The Federal Prohibition on Foreign Ownership: A Key Barrier in 2025

 

The most significant development affecting foreign buyers in Canada is the Prohibition on the Purchase of Residential Property by Non-Canadians Act. Initially introduced on January 1, 2023, this ban was subsequently extended until January 1, 2027. This means that throughout 2025, non-Canadians (individuals who are neither Canadian citizens nor permanent residents) are generally prohibited from purchasing residential properties in certain parts of Canada. The primary intent of this legislation is to reduce competition from foreign buyers, thereby making residential homes more accessible and affordable for Canadian citizens and permanent residents.

The ban primarily targets residential properties with three or fewer dwelling units, which includes single-family homes, semi-detached houses, townhouses, and condominium units. It applies mainly to properties located within Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs), which are essentially urban and suburban areas. Violations of this Act can lead to significant penalties, including fines of up to $10,000 CAD and, critically, the potential for forced resale of the property, with the non-Canadian receiving no more than the price paid for its purchase.

However, the ban is not absolute, and several important exemptions and allowances exist:

• Commercial Properties: The restrictions primarily apply to residential properties. Foreigners can still invest in commercial real estate, including apartment buildings with four or more units, office buildings, retail stores, hotels, and other properties intended for business use.
• Vacation Homes/Recreational Properties: Non-Canadians may generally purchase properties in certain recreational areas, such as cottages, cabins, or vacation villas, provided they are located outside of CMAs and CAs and meet local guidelines. This exemption aims to allow investment in specific types of properties that are less likely to impact primary housing affordability in urban centers.
• Vacant Land: Foreign buyers are allowed to purchase vacant land zoned for residential or mixed-use purposes, even within CMAs and CAs, if the primary intent is for development. This allows foreign investment in construction projects, which can ultimately increase housing supply.
• Work Permit Holders: Certain individuals with a valid work permit can purchase residential property under specific conditions. As of 2025, the work permit must have at least 183 days of validity remaining on the date of purchase, and the individual is restricted to owning only one residential property in Canada. Notably, specific exemptions have been introduced for skilled workers, such as tech workers holding TN visas, allowing them to purchase a home.
• International Students: International students meeting specific criteria may also be able to purchase a home. This often involves having a certain period of continuous presence in Canada, a valid study permit, and evidence of filing income tax returns.
• Spousal Purchases: Non-Canadians can purchase residential properties jointly with their spouse or common-law partner if the partner is a Canadian citizen, permanent resident, a person registered under the Indian Act, or a refugee.
• Specific Circumstances: Exemptions also apply to acquisitions due to divorce, separation, gift, or death, or when a creditor exercises a security interest.

It is paramount for any potential foreign buyer to thoroughly verify their eligibility under these exemptions and consult with a Canadian real estate lawyer to ensure compliance with the Act.

 

Taxation for Foreign Property Owners in Canada

 

Beyond the federal ban, foreign property owners in Canada are subject to a complex web of taxes, which can vary significantly by province and even by municipality. Understanding these obligations is crucial for financial planning.

1. Land Transfer Tax (LTT): This is a provincial tax payable on the purchase of property in almost every province in Canada. The tax is calculated as a percentage of the purchase price and is typically paid by the buyer on the closing date. Rates vary by province and are often tiered. For example, Ontario has a progressive LTT, and the City of Toronto levies its own additional Municipal Land Transfer Tax (MLTT), effectively creating a “double whammy” for buyers in the city. British Columbia also has its own Property Transfer Tax.

2. Foreign Buyer Taxes / Non-Resident Speculation Tax (NRST): Several provinces have implemented additional taxes specifically targeting foreign buyers, aiming to cool down overheated housing markets.

• Ontario’s Non-Resident Speculation Tax (NRST): As of 2025, the NRST imposes a 25% tax on any foreign national (and foreign corporations) purchasing a home in Ontario. This is in addition to the provincial land transfer tax.
• Toronto’s Municipal Non-Resident Speculation Tax (MNRST): Effective January 1, 2025, the City of Toronto implemented a new 10% tax on the purchase of residential properties by foreign entities. This adds to Ontario’s NRST, meaning a foreign buyer in Toronto could face a combined 35% foreign buyer tax on top of other land transfer taxes.
• British Columbia’s Foreign Buyer Tax: British Columbia also has a foreign buyer tax, typically around 20% in some regions, applied to foreign entities purchasing residential property. Exemptions and rebates for these provincial/municipal foreign buyer taxes may apply. For instance, a foreign national who becomes a permanent resident of Canada within a certain period (e.g., four years in Ontario) and meets other conditions (e.g., making the home their principal residence within 60 days of purchase) may be eligible for a rebate of the NRST/MNRST paid.

3. Annual Property Taxes: Regardless of residency status, all property owners in Canada are subject to annual property taxes, levied by the local municipality. These taxes fund local services such as schools, infrastructure, and public amenities. The amount is based on the assessed value of the property and the municipal tax rate, which varies significantly by location.

4. Income Taxes on Rental Income: If a non-resident owner chooses to rent out their Canadian property, they are subject to Canadian income tax on the net rental profits. The Canada Revenue Agency (CRA) requires a 25% withholding tax on the gross rental income paid to non-resident landlords. This amount must be remitted to the CRA by the tenant or property manager on behalf of the non-resident owner. Non-resident owners can elect to file a Canadian income tax return (Form NR6) to report their net rental income (gross rental income minus eligible expenses) and potentially receive a refund if the 25% withholding exceeded their actual tax liability. Failing to comply with these withholding rules can lead to significant penalties.

5. Capital Gains Tax on Sale of Property: When a non-resident sells a taxable Canadian property (which includes real or immovable property), they are generally subject to Canadian tax on any capital gain realized from the disposition.

• Withholding Tax on Sale Proceeds: To ensure collection, the Canadian government implemented significant increases to withholding taxes for non-resident sellers effective January 1, 2025. The federal withholding rate increased from 25% to 35% of the gross sale price (not the capital gain). In provinces like Quebec, the provincial withholding rate also increased to 17.167%, bringing the total withholding in Quebec to over 52%. This amount is held by the buyer’s lawyer or notary until a Certificate of Compliance is obtained from the CRA.
• Certificate of Compliance: To avoid the full withholding amount, non-resident sellers must apply for a Certificate of Compliance (Form T2062) from the CRA. This certificate confirms the seller’s tax liability and allows a lower amount to be withheld, typically based on the estimated capital gain. Obtaining this certificate is crucial for reducing the initial financial burden and can take several weeks.
• Filing a Canadian Income Tax Return: Even with a Certificate of Compliance, the non-resident seller must file a Canadian income tax return for the year of sale to report the actual capital gain and pay any remaining tax due, or claim a refund if too much was withheld.

6. Underused Housing Tax (UHT): Introduced in 2022, the UHT is a 1% tax on the value of residential property owned on December 31st of each calendar year. It primarily applies to foreign nationals who are neither citizens nor permanent residents of Canada and own vacant or underused residential real estate. Affected owners must file a UHT return by April 30th of the following year, even if no tax is payable. Penalties for non-compliance are severe.

 

The Necessity of a Local Canadian Bank Account

 

Yes, a local Canadian bank account is highly recommended, and in most cases, essential for buying property in Canada as a foreigner. While it might not be a strict legal requirement at the very initial stage of making an offer, it becomes indispensable throughout the purchasing process and for ongoing property management.

Here’s why a local bank account is crucial:

• Deposit and Closing Costs: The initial deposit (often 5-10% of the purchase price) and subsequent closing costs (legal fees, land transfer taxes, adjustments) are typically required to be paid in Canadian dollars, often via wire transfer or certified cheque from a Canadian institution.
• Mortgage Payments: If you are financing your purchase with a Canadian mortgage, lenders will require you to set up automatic payments from a Canadian bank account. Most Canadian banks require you to have a local account to facilitate mortgage disbursements and ongoing payments.
• Ongoing Expenses: For property owners, a Canadian bank account simplifies the payment of regular expenses such as property taxes, utility bills (electricity, water, gas), insurance premiums, and any strata or condominium fees. Managing these from an international account can incur significant foreign exchange fees and transfer delays.
• Rental Income: If you plan to rent out your property, a Canadian account is necessary to receive rental payments, especially if you have a property manager collecting rent on your behalf. It also facilitates the remittance of the 25% withholding tax to the CRA.
• Proof of Funds and Due Diligence: Canadian banks often require proof of funds when opening an account, especially for non-residents, and may conduct enhanced due diligence. Having a local account demonstrates your financial readiness and commitment.
• Convenience and Exchange Rates: Conducting transactions in local currency minimizes foreign exchange fluctuations and conversion fees. While some international money transfer services can convert funds to CAD, a local bank account provides the final destination for these funds.

How to Open a Canadian Bank Account as a Non-Resident: The process typically involves:

• Identification: A valid passport and often a second piece of government-issued identification.
• Proof of Address: Proof of your current address, even if it’s in your home country (e.g., utility bill, bank statement).
• Financial Details: Some banks may require details on the source of your funds.
• Tax Identification Number: While a Social Insurance Number (SIN) is for residents, non-residents may need to apply for an Individual Tax Number (ITN) from the CRA (Form T1261) for tax compliance, especially if you plan to earn rental income or sell property. It’s advisable to apply for an ITN well in advance. Many Canadian banks have dedicated services for non-residents and can sometimes facilitate remote account setup. However, it’s often easier to complete the process in person if you are visiting Canada.

 

The Buying Process and Professional Advice

 

The process of buying property in Canada, while similar to other Western countries, has nuances, especially for non-residents:

1. Verify Eligibility: First and foremost, determine if you are exempt from the federal foreign buyer ban.
2. Secure Financing (if needed): Non-residents typically face stricter mortgage requirements. Expect a higher down payment (often 35% or more of the purchase price) and potentially higher interest rates. Lenders will scrutinize your creditworthiness and income stability. Some Canadian banks cater specifically to non-residents.
3. Obtain a Canadian Tax ID (ITN): Essential for tax compliance.
4. Engage a Real Estate Agent: A licensed local real estate agent with experience working with international buyers is invaluable. They can guide you through market conditions, property search, negotiations, and understanding provincial regulations.
5. Hire a Real Estate Lawyer: This is non-negotiable. A Canadian real estate lawyer will conduct crucial due diligence, review the purchase agreement, ensure the property is free of liens, manage the transfer of funds, register the title deed, and advise on all tax implications.
6. Property Search and Offer: With your agent, identify suitable properties, make offers, and negotiate terms.
7. Due Diligence: This includes a home inspection, appraisal, and confirming zoning regulations.
8. Closing: Your lawyer will handle the final steps, including transferring funds and registering the new title.

 

 

Buying property in Canada as a foreigner in 2025 is feasible, but it requires thorough preparation and a clear understanding of the evolving legal and tax landscape. The federal ban on residential property purchases for non-Canadians in urban areas, extended until 2027, is the most significant hurdle, though exemptions exist for specific categories like certain work permit holders and recreational properties outside major urban centers. Beyond the ban, foreign buyers must contend with provincial foreign buyer taxes (which can be substantial, e.g., 25% in Ontario plus an additional 10% in Toronto), land transfer taxes, annual property taxes, and complex income and capital gains tax rules, including increased withholding taxes on rental income and sales proceeds. Establishing a local Canadian bank account is almost always a necessity for managing deposits, mortgage payments, and ongoing property expenses. Given the complexity and regional variations in regulations, engaging experienced Canadian real estate lawyers, tax advisors, and real estate agents specializing in international clients is not just recommended, but essential for a smooth and compliant acquisition. Canada remains an attractive investment destination, but successful foreign entry into its property market now more than ever demands expert guidance and meticulous adherence to its stringent rules.