If you’ve been dreaming of buying a cottage along the Canadian waterfront, you will have to keep dreaming – rather than shopping – for the next two years.
Nick Dubanow, the Ward 2 Council member in Fort Erie, Ont., talks about how a recently enacted ban on foreigners purchasing property and a vacancy tax are putting a halt to the longtime tradition of Western New Yorkers owning vacation homes in the region.
And if you already own such a property, remember this date: April 30. That’s when you and thousands of other Americans who own property in Canada may well have to pay a new annual tax on it.
In a wide-ranging effort to control housing prices, Canada has barred foreigners from buying real estate for two years. Meanwhile and for the same reason, our neighbor to the north has finally implemented its long-threatened tax on underused properties – one that appears to inadvertently tax many vacation homes along the Lake Erie shoreline.
The twin policies, buried in Canadian legislation passed without much notice last year, enrage people on both sides of the border between Buffalo and Fort Erie, communities that long felt themselves as part of one big binational metropolitan area.
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Rep. Brian Higgins, a Buffalo Democrat, said he confronted Kristen Hillman, the Canadian ambassador to the United States, and her chief of staff about the new policies at a reception at the Canadian embassy in Washington last week.
“I said: ‘This is ridiculous,’ ” Higgins said.
Ward 2 Council Member Nick Dubanow in Fort Erie, Ont., walks past a “for sale” sign on Schooley Road in the popular Crystal Beach neighborhood that is now off-limits to potential buyers in the U.S. due to a national ban on foreigners purchasing real estate. The rule has put a halt to the multigenerational tradition of Western New Yorkers buying vacation homes in the region.
Nick Dubanow, a Fort Erie Council member, agreed.
“It’s really concerning to see our federal government on this side of the border not recognize probably the most unique and truly most special relationship between two nations on earth, which is between Canada and the United States,” Dubanow said. “They’re lumping the U.S. in with the rest of the world, treating them like they’re on the other side of the planet.”
‘Homes, not commodities’
Canada enacted both the ban on foreigners buying properties and the underutilized property tax because Canadian housing prices, particularly in major metro areas like Toronto and Vancouver, have been skyrocketing in recent years.
Between February 2015 and February 2022, for example, the typical home price in Canada doubled, the Canadian Real Estate Association reported. But that average national home price – $626,318 as of last December – would actually be $118,000 less than that if homes in metro Toronto and metro Vancouver were excluded.
The Canadian government said it acted because a surprising number of new homes in those major metro areas were being snapped up by foreign speculators.
“Homes are for people, not investors,” said the campaign website of Canadian Prime Minister Justin Trudeau, whose Liberal Party government pushed the new housing policies into law.
The two-year ban on foreigners buying Canadian real estate took effect Jan. 1. It allows foreigners to gift their properties to others and to leave properties to their heirs when they die. The ban also still allows foreigners to buy recreational properties that are not located in major metropolitan areas.
But properties near Buffalo on the Southern Ontario lakefront don’t qualify for that exemption because they are considered to be part of the St. Catharines-Niagara census metropolitan area. Similarly, many vacation properties in Southern Ontario will be subject to that new tax just because they are considered metropolitan, even though they are located in small communities where the population swells only in the summer.
Trudeau administration officials maintain that the new policies are good for Canadians.
“Homes should not be commodities,” said Ahmed Hussen, Canada’s minister of housing, diversity and inclusion. “Homes are meant to be lived in, a place where families can lay down roots, create memories and build a life together. Through this legislation, we’re taking action to ensure that housing is owned by Canadians, for the benefit of everyone who lives in this country.”
A “for sale” sign in front of a pair of newly renovated cottages on Eastwood Avenue in Crystal Beach in Fort Erie, Ont. on Friday, Feb. 10, 2023.
The buying ban
Not surprisingly, some Buffalo-area residents – and even some Canadians – don’t think much of the new law aimed at making sure Canadian properties remain Canadian.
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“This is xenophobia at its worst, and runs contrary to everything that Canada has historically stood for,” said former Rep. John LaFalce, a Town of Tonawanda Democrat who owns a cottage on Lake Erie in Southern Ontario.
Several other Western New Yorkers who own properties in Canada said the law narrows the market for selling properties near the Lake Erie lakefront.
And Richard Halinda, an attorney in Fort Erie who specializes in serving Americans who own homes in Canada, called the ban “misguided.” Home prices have increased in the area, but he said it’s largely because of people from Toronto buying them and in some cases turning them into short-term rentals.
“The prices on the lake have not been pushed up because of Americans,” Halinda said.
Real estate experts in Canada don’t blame price increases nationwide on foreigners, either. Canadian statistics show that foreigners owned no more than 6% of the homes nationwide in 2020, noted Diana Mok, associate professor of real estate finance and economics at Western University in London, Ont.
“Foreigners’ contributions to the housing crisis are puny and paltry in comparison with everyone else’s, many of whom have eagerly traded up for bigger homes or down for smaller ones and benefited from the lucrative market,” Mok wrote in an essay in the Conversation, a Canadian news site.
To top it all off, Canadian housing prices started falling last year as higher interest rates kicked in, the Canadian Real Estate Association reported. In addition, the real estate group projected the new law’s impact would have only a modest impact on home prices while imposing a cost of another kind.
“Canada has built a reputation as a multicultural nation that welcomes people from around the world,” the group said. “The prohibition on the purchase of residential property by non-Canadians can impact our reputation as a welcoming nation.”
A new tax
While the two-year ban on foreigners buying real estate is comparatively straightforward, Americans who own cottages in Fort Erie remain mystified by the 1% tax on underused properties that took effect this year.
“I’ve got about 300 people I’m trying to help, and it’s growing by the day,” Halinda, who’s been seeking more details about the tax from Canadian officials, said last week..
Here’s what’s known so far about the 1% tax on underutilized properties: It took effect on Jan. 1, and tax bills will be due on April 30. Vacation properties that are not weatherized are exempt, as are properties that are occupied more than 180 days per year. And property owners that have to pay the 1% tax on the value of the property will have to do so every year.
But the Canadian government still hasn’t announced other new technical details about the tax, leaving cottage owners to wonder about whether they will have to pay, and how much. The current details about the tax are so vague that the Fort Erie Town Council recently passed a resolution asking the Canadian government to clarify how the tax will affect seasonal cottages in the town.
“Supposedly we are supposed to state how many days/weeks we use the cottage, is it habitable for all seasons, etc.,” said Joann Boehm, of the Town of Tonawanda, whose cottage in Ridgeway, Ont., has been in the family since 1963. “But we’ve not heard anything yet. Our tax bills usually come soon, so perhaps they will have additional documentation in the envelope.”
Carl Giarrano of Hamburg, whose family owns two cottages in Crystal Beach, said he may feel compelled to sell one of them because of the tax. He said he’s worried that the tax will drive Americans away from a binational beach scene that he described as idyllic.
“It’s all about backyard bonfires and kids chasing butterflies and staying up probably later than they should and kids going to bed with sand on their feet and no one complaining about the sand on the bed,” he said. “It’s that kind of community.”
Giarrano is by no means alone in worrying about the impact of the tax. Higgins’ office last week published an online survey about the issue, and 162 Americans who own property in Canada responded as of Tuesday. Over 80% of the survey respondents were from Western New York, and 70% said their Canadian properties had been owned by their family for at least 20 years. Higgins’ office said the main message survey respondents delivered was that the information the Canadian government had released about the new tax was lacking, confusing and frustrating.
The survey is just one of the tools Higgins is using to try to force the Canadian government to repeal the tax. The Buffalo congressman wrote to U.S. Secretary of State Antony Blinken to complain about the policy last week, and said he plans to raise the issue with U.S. Trade Representative Katherine Tai at an upcoming hearing.
Higgins maintains that the Canadian tax policies violate the U.S.-Mexico-Canada Trade Agreement as well as longstanding tax treaties, and he’s threatening to push legislation to impose a similar tax on Canadian-owned properties in America to retaliate for Canada’s moves.
He said the Canadian moves threaten the long-friendly ties between the U.S. and Canada.
“This is not good diplomacy,” he said. “You know, diplomats are supposed to be promoting a spirit of cooperation.”
Gary Gottlieb of North Buffalo, who owns a family cottage in Crystal Beach, seemed equally frustrated with the Canadian government.
“I had friends up there that always complained about our America-first policy,” Gottlieb said. “And now there seems to be a Canada-first policy.”
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Jerry Zremski, who has covered Washington for The Buffalo News since 1989, is a lecturer at the Philip Merrill College of Journalism at the University of Maryland.
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