WASHINGTON – Canada is going ahead with its plan to slap a 1% annual tax on underused foreign-owned real estate – and while the nation's government says it wants to exempt vacation homes from the levy, it looks as if Americans owning property in the Niagara region will have to pay up.
Although that is not a sure thing, that's the conclusion Fort Erie officials made last week upon reading language the Canadian Department of Finance issued to describe the exemption to the new underused housing tax.
That language – which, many sources said, is confusingly written – exempts rural vacation properties from the tax while appearing to leave the levy in place for vacation homes located in metropolitan areas.
Fort Erie, along with Port Colborne to the west, are both parts of the St. Catharines-Niagara census metropolitan area. And Fort Erie in particular is filled with seasonal cottages owned by Buffalo-area residents.
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"I would think they wouldn't qualify" for the tax exemption, said Fort Erie Mayor Wayne Redekop, a Canadian attorney who's reviewed the language.
Fort Erie Councillor Nick Dubanow agreed, saying that because Fort Erie is within a census metropolitan area with 450,000 people, the exemption "wouldn't apply to us."
If the two government officials are correct, Americans owning properties in the region would start paying hefty new taxes on them starting this year, with the first bill due in April 2023. For a one-bedroom cottage currently for sale for about $336,000 in U.S. currency in Port Colborne, the annual tax would be $3,360. And for a four-bedroom, $1.64 million waterfront property in Fort Erie, the annual tax would be $16,400.
Then again, it's not entirely certain that Canadian officials intended to tax those vacation homes while writing an exemption to the tax for vacation homes. Pressed for a further explanation of their "Tax Measures – Supplementary Information," which spelled out the exemption, a spokesman for the Canadian Department of Finance failed to do so despite repeated inquiries over four days last week.
Fort Erie real estate attorney Richard Halinda has been making inquiries with federal officials as well, and he said he is reluctant to comment on the exemption until he hears more details about what it means.
As it stands, the guidance the Canadian Department of Finance published says foreign homeowners will qualify for the exemption if their property "(1) is located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents; and (2) is personally used by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year."
If that phraseology leaves you grasping for meaning, you are not alone.
"It's a clear as mud to me," said Anthony H. Gioia, a retired Buffalo businessman, former U.S. ambassador to Malta and the longtime owner of a beachfront home in Fort Erie.
"It's not particularly well-written," Redekop said.
What's particularly unclear, several sources said, is the intent behind the exemption. It's clear that the Canadian government imposed the tax to crack down on real estate speculation by foreigners in cities such as Toronto and Vancouver, where housing prices have increased exponentially. But what's unclear is whether Canadian officials wanted to tax Americans owning property in the Niagara region while giving a tax break to Americans who own vacation homes in just about every other part of the country.
Rep. Brian Higgins, a Buffalo Democrat, said, too, he has reached out to Canadian officials to try to get a fuller explanation of the tax and the exemption.
"Is it punitive against non-Canadian citizens who have owned properties that contributed to the economy of Ontario, Fort Erie and the Niagara region for many, many decades?" Higgins asked. "Or is this an unintended consequence of attempting to address a problem that's specific to the larger metropolitan area of Toronto? I don't know. I don't have answers to these questions."
If Canada really intends to impose the tax on vacation properties just across the Niagara River from Buffalo, the U.S. should consider a reciprocal tax on Canadian-owned property in the U.S., said Higgins, who noted that a number of Canadians own property in Ellicottville.
Others, meanwhile, think that the Canadian government can't possibly want to tax vacation home owners in one area of the country while writing an exemption for those elsewhere.
"I can't believe that they would want to tax those homes in Fort Erie or in Niagara-on-the-Lake that are owned by individuals who really don't want to rent them out; they want to use them themselves," said former Rep. John J. LaFalce, a Town of Tonawanda Democrat who has a summer place in Fort Erie.
Jamie Golombek, managing director of tax and estate planning at CIBC in Toronto, agreed.
"It’s a sensitive topic for sure, as I don’t think the intention is to discourage local cross-border cottagers!" he said via email.
But that's exactly what the Canadian government is doing, LaFalce said. Frustrated primarily by the long pandemic-inspired border shutdown and the existing PCR test requirement for entering Canada, Americans who have long owned summer places in Canada "are selling their homes in droves," he said.
Gioia said that with that huge new tax apparently looming, it might be time for him to do the same.
"Well, this just means maybe we'll get a condo in Florida and get rid of Canada," he said.
Jerry Zremski
Washington bureau
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.
