Foreign Buyer Considerations for Toronto Real Estate in 2025: What You Need to Know

The Toronto real estate market has long attracted international investors and foreign buyers. However, in recent years, significant regulatory changes have altered the landscape for non-Canadian buyers interested in Toronto’s property market. Understanding these regulations is essential for foreign investors looking to purchase property in Toronto and its surrounding communities in 2025.

Current Regulations for Non-Canadian Buyers

The most significant regulation affecting foreign buyers is the “Prohibition on the Purchase of Residential Property by Non-Canadians Act,” which came into effect on January 1, 2023. This federal legislation was implemented to reduce competition from foreign buyers and make residential homes more accessible for Canadian citizens.

Key points of this legislation include:

• A ban on non-Canadian citizens and entities from purchasing residential property
  in Canada
• The prohibition is valid until January 1, 2027
• Penalties for violation include fines of up to $10,000 and potential forced sale of the
  property
• The ban applies to properties in Census Metropolitan Areas (CMAs) and Census
  Agglomerations (CAs), which includes Toronto and its surrounding communities

This legislation has significantly changed the approach for foreign buyers interested in
Toronto’s real estate market.

Exemptions and Workarounds for Foreign Buyers

Despite the restrictions, there are several exemptions and strategies that allow foreign
buyers to participate in Toronto’s real estate market:

Legal Exemptions

• Temporary residents: Foreign nationals with work permits or those studying in
  Canada who meet specific criteria can purchase one residential property under
  $500,000
• Permanent residents: Those with permanent resident status are exempt from the
  ban
• Joint purchases: Foreign nationals can purchase property jointly with a Canadian
  spouse, common-law partner, or citizen
• Commercial properties: The ban does not apply to commercial real estate
  investments
• Properties with 4+ residential units: Multi-family properties with four or more
  units are typically classified as commercial and exempt from the ban

Strategic Approaches

• Focus on commercial properties: Many foreign investors have shifted to commercial real estate, including retail spaces, office buildings, and multi-unit residential buildings.
• Pre-construction investments: Some foreign buyers are investing in preconstruction properties that will be completed after the ban expires in 2027
• Immigration pathways: Many foreign investors are pursuing permanent residency through various immigration programs to become exempt from the ban
• Corporate structures: Working with Canadian partners through properly structured corporations (though this requires careful legal guidance)
  

Tax Implications for Foreign Investors

Foreign buyers face several tax considerations when investing in Toronto real estate:

Non-Resident Speculation Tax (NRST)

• 25% tax on the purchase price of residential property in the Greater Golden Horseshoe Region (including Toronto and surrounding areas)
• Applies to foreign entities and taxable trustees
• Limited exemptions exist for foreign nationals who become permanent residents within a specific timeframe

Land Transfer Tax

Foreign buyers must pay the standard Land Transfer Tax that applies to all property purchases:

• Ontario Land Transfer Tax: Progressive rates from 0.5% to 2.5% based on property value
• Toronto Municipal Land Transfer Tax: An additional tax for properties within Toronto city limits, with similar progressive rates
• Combined, these can add 4-5% to the purchase price for high-value properties

Income Tax Considerations

• Rental income is subject to a 25% withholding tax (can be reduced through filing a Section 216 return)
• Capital gains tax of approximately 25% on profits when selling the property
• Non-residents must file Canadian tax returns for any Canadian-source income

Additional Considerations

• Property tax rates vary by municipality within the GTA
• Potential for additional taxes if the property is left vacant (in some municipalities)
• Tax treaties between Canada and the buyer’s home country may provide some relief from double taxation

Financing Options for Non-Residents

Securing financing as a non-resident buyer presents additional challenges:

• Most Canadian banks require larger down payments from non-residents (typically 35-50%)
• Interest rates are often higher for non-resident mortgages
• Stricter income verification requirements apply
• Some lenders specialize in non-resident mortgages but charge premium rates
• Private lending options exist but typically come with higher costs

Many foreign buyers opt to make cash purchases or secure financing from institutions in their home countries to avoid these challenges.

Working with Professionals

Future Outlook for Foreign Buyers

Given the complexity of regulations and tax implications, foreign buyers should work with:

• Real estate lawyers with experience in non-resident transactions
• Accountants specializing in cross-border taxation
• Real estate agents familiar with foreign buyer needs and restrictions
• Mortgage brokers experienced with non-resident financing options

These professionals can help navigate the regulatory landscape and identify legitimate opportunities within the current restrictions.

Future Outlook for Foreign Buyers

The prohibition on foreign buyers is scheduled to expire on January 1, 2027, potentially reopening the market to international investors. However, the policy landscape may change before then:

• Potential for extension if housing affordability remains a concern
• Possible modifications to existing exemptions
• Introduction of alternative measures to manage foreign investment

Foreign buyers interested in Toronto real estate should monitor policy developments closely and consider long-term strategies that account for the current restrictions while positioning for future opportunities.