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Foreign Buyer Tax Survives Constitutional Challenge

Published: July 26, 2021

Last Updated: November 19, 2021

What is the Foreign Buyer Tax?

The foreign buyer tax is a property transfer tax in Ontario and British Columbia. The foreign buyer tax is imposed by the provincial governments under their land transfer tax statutes. It is payable in addition to the normal land transfer tax.

Who Pays the Foreign Buyer Tax?

The foreign buyer tax is payable by a “foreign entity” and “taxable trustee” on certain purchases. A foreign entity is either a “foreign corporation” or a “foreign national.” See our discussion of taxable trustees here.

A foreign corporation is one that is (1) not incorporated in Canada; or (2) incorporated in Canada but controlled by either a foreign national, a corporation not incorporated in Canada, or a combination of the two.

A foreign national is an individual who is neither a Canadian citizen, nor a permanent resident of Canada.

How Much is the Foreign Buyer Tax?

In Ontario the tax is equal to 15% of the “value of consideration” for the transfer.

In British Columbia the tax is equal to 20% since 2018. The tax was 15% when it was first enacted in 2016.

What Property Does the Foreign Buyer Tax Apply To?

In Ontario the tax only applies to land in the “Greater Golden Horseshoe Region.” In British Columbia, it applies to the Metro (or Greater) Vancouver Region District. In either case, the government excludes prescribed properties through the definition of a “specified” area/region.

In both provinces the property must be of a residential type. The definitions of residential property differ slightly between the provinces but always include “single family residences” and similar homes. Also, if a transaction includes property that is not residential or designated under the statute, the tax is applied to that proportion of the total consideration which is attributable to designated land.

Li v British Columbia – Is the Foreign Buyer Tax Constitutional?

In 2016 Ms. Jing Li purchased a property in Langley, British Columbia for $559,000. At the time she was not a Canadian citizen or permanent resident of Canada, but was working in the province under a valid work permit. Consequently, she was a “foreign national” under the B.C. land transfer tax statute. The home she purchased also fell within the scope of the statute because of its location and residential nature. Therefore, she paid $83,850 in foreign buyer tax on the purchase (15% of the consideration). She brought a class action lawsuit against British Columbia to challenge the constitutionality of the foreign buyer tax.

A Valid Provincial Power

There are two levels of government in Canada: federal and provincial. The Constitution Act, 1867 which created the Dominion of Canada governs the powers assigned to each level of government. Ms. Li attempted to argue that the foreign buyer tax was outside British Columbia’s jurisdiction (or ultra vires the province). This argument required the court to (1) identify the “pith and substance” of the law, and (2) classify it amongst the different heads of power in the constitution. The first step is very important and is often determinative of the second.

At Step 1 the Canadian tax litigation lawyer acting for Ms. Li tried to argue that the pith and substance of the foreign buyer tax was to alter the behaviour of foreign nationals and discourage their participation in the real estate market. She made this claim in anticipation of Step 2 where such a characterization would better align with federal powers in relation to “aliens”, trade and commerce. However, the court held the foreign buyer tax’s essential character to be about “addressing the problem of housing affordability in specified areas of the province by discouraging foreign nationals from purchasing property in those areas, thereby reducing demand.” Ms. Li put forth counterarguments, asking the court to focus its analysis on the effects of the law on foreign nationals. However, the court noted that characterizing a law involves more than just its effects, but also its dominant purpose — which was clearly about housing affordability in this case. In this regard, Ms. Li argued that “housing affordability” expanded the laws character too broadly. However, the judge rejected this argument because the law was not directed towards housing affordability at large. Rather, the law specifically targeted affordability in areas where housing had suffered hyper-commodification and a decoupling from local incomes.

At Step 2 the Canadian tax litigation lawyer acting for the province argued that the foreign buyer tax was validly enacted under its power relating to matters of property and civil rights (s 92(13)). Canadian tax counsel for Ms. Li argued that it related to the federal power over aliens (s 91(25)), or alternatively, the federal power over trade and commerce (s 91(2)). The court held that the foreign buyer tax was validly enacted “in relation to” property and civil rights, and any of its effects on aliens, trade and commerce were incidental. Common sense dictated that a tax on housing purchases embedded in the provincial land transfer system is a provincial matter. While foreign nationals may have been discouraged from buying, they were not prohibited from doing so. Moreover, the law did not target soon to be residents, nor prohibit non-residents from renting or working in the Greater Vancouver Region District. Regarding trade and commerce, the court similarly held that any reduction in foreign capital inflow was an incidental effect, not to mention the law would apply regardless of a foreign national’s source of capital (i.e. a purchaser using funds arising in Canada would still be subject to the foreign buyer tax).

No Frustration of Federal Laws

A validly enacted provincial law may nevertheless be constitutionally challenged on the basis of the doctrine of paramountcy. Here, the operation of a valid provincial law will be suspended based on how it interacts with a valid federal law. Specifically, the provincial law must frustrate the purpose of a federal law, or it must be impossible for someone to comply with both laws simultaneously. The Canadian tax lawyer for Ms. Li argued that the law was in operational conflict with two federal laws: the Citizenship Act and the North American Free Trade Agreement (NAFTA).

Section 34 of the Citizenship Act states that non-citizens are permitted to acquire land “in the same manner in all respects” as citizens. Ms. Li argued that the foreign buyer tax frustrated the purpose of this section of the Act. However, the court assessed House of Commons debates and other evidence to find the purpose of this section was merely to reverse prior common law which completely prohibited aliens from holding and passing land. Its enactment was meant to create a capacity to hold land for non-citizens which did not previously exist, not to extend any special immunity from valid provincial laws like the foreign buyer tax.

The Canadian tax litigation lawyer for Ms. Li argued that the foreign buyer tax frustrated NAFTA, Chapter 11, Article 1102, which requires a member country to extend to investors of other member countries “no less favourable treatment” in respect of acquiring, managing or disposing investments as compared to its own investors. Here, Ms. Li was unsuccessful because Chapter 11 of NAFTA has never been implemented into domestic law. Her argument related to general provisions of the NAFTA Implementation Act, but the court held that this Act is very specific in how it implements portions of NAFTA by amending other domestic statutes.

No Violation of Canadian Charter Equality Rights

A law is also unconstitutional if it violates the Canadian Charter of Rights and Freedom. Ms. Li argued that the foreign buyer tax violated her right to equality under s 15 of the Charter. For a law to violate the right to equality it must both (1) directly or indirectly create a distinction based on enumerated or analogous grounds; and that distinction must (2) impose a burden or deny a benefit in a manner that has the effect of reinforcing, perpetuating or exacerbating disadvantage.

Ms’ Li argued that the foreign buyer tax violated her right to equality in two ways:

  • (1) Direct discrimination on the basis of citizenship; and,
  • (2) Indirect discrimination on the basis of the “intersecting” grounds of national origin and citizenship

The court held that the foreign buyer tax did not violate equality in any of these instances. The direct discrimination claim failed because the court held that the foreign buyer tax discriminated on the basis of immigration status, not purely citizenship – “foreign national” being the combination of non-citizens and non-residents of Canada. Immigration status is considered a valid ground along which governments can provide differential treatment because immigration status can be changed by the individual, unlike sex, race, or ethnicity. Even if the court accepted that there was a direct distinction based on citizenship, the court found no evidence that a disadvantage was perpetuated by the foreign buyer tax in a direct manner.

Finally, the court also rejected the indirect claim. On its face, the foreign buyer tax distinguishes between foreign nationals equally, irrespective of their residence or citizenship (i.e. an American and Chinese foreign national are assessed equally under the foreign buyer tax). However, Ms. Li argued that “buyers from Asian countries, especially buyers from China” were treated differently. First, the court disproved of a vague combination of national origin and citizenship. Second, the court held that Ms. Li could not demonstrate with evidence that Asian or Chinese buyers were being distinguished from other foreign nationals disproportionately. Conversely, the tax burden was simply proportionate to their demand for real estate “in a country to which they are not permanently tied.” The court also disproved of Ms. Li’s conflation of the second step regarding “perpetuating disadvantage” with the first step, which requires the claimant to begin by identifying a distinction based on an enumerated or analogous ground. Ms. Li had engaged in circular reasoning here by attempting to tie historic discrimination of the Asian community into the first step.

Pro Tax Tip – Consider Your Eligibility for an Exemption or Rebate

Depending on the identity of a purchaser, the foreign buyer tax may or may not apply. For example, we discuss the nominee exemption in Ontario here. In addition to exemptions, there may be rebates available following a sale if you become a permanent resident, work full-time under a valid work permit or are an international student. Interestingly, if the work permit rebate was available in British Columbia, it would have provided Ms. Li with a means to recoup her tax burden. You should consult an expert Toronto tax lawyer if you have questions about whether the foreign buyer tax applies or about your eligibility for an exemption or rebate.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

Frequently Asked Questions

Yes. To qualify for a foreign buyer tax rebate, the home must not simply meet the definition of residential property and/or be designated as taxable at the time of purchase. You must begin to occupy the property as your principal residence within 60 days after the purchase.

Foreign buyer tax rebates must be applied for within 4 years of the tax becoming payable. However, if the foreign buyer tax rebate is tied to your becoming a permanent resident, the deadline is 90 days after you attain permanent resident status.

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