BAM Key Details:
- Canada’s “underused housing tax” took effect at the start of 2023 to discourage foreign real estate investors from driving up home prices for Canadian citizens.
- Now, a bipartisan group in Congress is urging Secretary of State Antony Blinken to argue for a broad exemption from the law for U.S. citizens owning vacation properties north of the border.
- Led by Rep. Brian Higgins (D-N.Y.), the letter to the State Department argues that Canada’s policy is in violation of the U.S.–Mexico–Canada Agreement and threatens the relationship between the U.S. and Canada.
At the start of 2023, Canada’s new “underused housing tax” took effect, adding a 1% levy to foreign-owned properties. The aim was to discourage foreign investors from driving up home prices for Canadian citizens.
But for the many U.S. citizens owning vacation properties north of the border—many of them U.S. lawmakers—the law feels like a slap in the face.
CTV News recently published a piece on a letter signed by a bipartisan group of U.S. lawmakers to the State Department. The letter asks Secretary of State Antony Blinken to formally register U.S. opposition to the law and to push for an exemption for U.S. citizens.
One reason given for the exemption is the close relationship between the U.S. and Canada, with many lawmakers working over the years to improve rapport between our governments.
However, aside from the relationship between the two countries, there are other factors being considered in the debate.
Canada’s underused foreign-owned housing tax
The 1% levy imposed is meant to dissuade foreign real estate investors from buying up Canadian properties and driving up home prices for Canadian citizens. The tax applies to foreign non-resident owners of Canadian properties in areas with at least 10,000 residents.
And while the restriction is aimed primarily at limiting foreign real estate investment in more populated areas, homes in more remote locations are not exempt.
That said, the 11 lawmakers who signed the letter—representing Connecticut, New York, New Jersey, Pennsylvania, Ohio, Virginia, Florida, and South Carolina—argue that the law unfairly punishes U.S. owners of vacation homes north of the border.
Spearheading the campaign, Rep. Brian Higgins (D–N.Y.) has frequently advocated for streamlined travel across the U.S.–Canada border, and many of his constituents have owned vacation property in Canada for years.
The underused housing tax is an insulting and unjustified attack on these Americans who use these properties not as a prospective investment but as a second home. The tax shouldn’t be imposed on Americans. It sets a dangerous precedent for actions that damage a robust binational exchange.
Higgins also argues that Canada’s policy violates the U.S.–Mexico–Canada Agreement (USMCA) and is diametrically opposed to what the U.S. and Canada should be doing to revive cross-border commerce now that COVID travel restrictions have been lifted.
This is an unnecessary burden and bad-faith action by the government of Canada which violates the (USMCA), as well as long-standing tax treaties.
John LaFalce, who lives in Buffalo and spent 28 years in Congress, owns a cottage in Fort Erie, Ontario, which he bought shortly after he retired in 2003. Asked for his opinion on the 1% levy, LaFalce says he’s offended by it and sees it as an affront to the unique relationship between the U.S. and Canada, which he worked to strengthen while serving on Capitol Hill.
In an interview, LaFalce put it more forcefully:
It’s a hostile act. It’s a xenophobic act. And it’s certainly not the type of act that becomes people in countries who consider themselves best friends.
Rep. Higgins likewise appealed to the long-standing relationship between our two countries in the letter to the State Department.
The United States and Canada share a unique relationship, but imposing the underused housing tax is concerning and threatening to it and must be addressed in upcoming bilateral meetings.
The letter formally asked the Secretary of State to work with his counterparts in the Canadian government to find a solution that would exempt Americans from the tax.
A Republican signing the letter, Rep. Claudia Tenney, agreed with Higgins’ assessment of the law, calling it a “poorly conceived,” unfair, and unjust measure that, uncorrected, will undermine the relationship between the U.S. and Canada.
I join my colleagues on both sides of the aisle in urging the secretary of state to work with the Canadian government to rectify this misguided policy.
According to CTV News, the federal government has granted an extension—pushing the due date from April 30 to October 31—to give foreign property owners more time to determine if their Canadian properties are eligible.
Penalties for late payment of the tax range from $5,000 to $10,000.
Takeaways for real estate agents
If you work with clients looking to buy second homes north of the U.S.–Canada border, make sure they know of the 1% levy on foreign-owned Canadian property. They may want to pause their vacation home-buying plans until they know whether or not Americans will be exempted.
If they’re looking at other foreign properties, make sure you know whether those countries likewise impose restrictions on home purchases by foreign buyers—and what that would mean for your clients.
As for clients and prospects who already own a vacation home in Canada, keep an ear to the ground to learn whether they’ll owe the Canadian government or be exempted by October 31.