Item - 2024.EX11.1

The Executive Committee recommends that:

1. City Council approve the implementation of a Municipal Non-Resident Speculation Tax on foreign buyers of residential property in the City of Toronto, effective January 1, 2025, at a rate of 10 percent of the value of consideration for the purchase of property.

2. City Council approve the final tax design features for the Municipal Non-Resident Speculation Tax as set out in Attachment 2 to the report (January 16, 2024) from the Chief Financial Officer and Treasurer, and City Council amend the City of Toronto Municipal Code Chapter 760, Taxation, Municipal Land Transfer Tax, to add the Municipal Non-Resident Speculation Tax.

As part of the Updated Long-Term Financial Plan considered in September 2023, City Council directed staff to report back with an implementation plan to introduce a new land transfer tax on foreign buyers of residential property in the City. This report recommends introduction of a new Municipal Non-Resident Speculation Tax on foreign buyers of certain residential property, effective January 1, 2025.

The primarily objective of the Municipal Non-Resident Speculation Tax is to safeguard and enhance the availability of residential housing supply and to maintain a level of affordability in the residential real estate market by discouraging international buyers from purchasing property in the City of Toronto, particularly those buyers who do not intend to live in the property, or where the purchase is for purely speculative motives. Staff are recommending introduction of a 10% rate on the residential purchase price, which, when coupled with other land transfer tax related impacts, is expected to effectively deter real estate speculation.

The Province of Ontario currently levies its own Non-Resident Speculation Tax of 25% of the purchase price on the purchase or acquisition of an interest in certain residential property located anywhere in Ontario by foreign entities (individuals who are not citizens or permanent residents of Canada and foreign corporations) and taxable trustees. Originally implemented in 2017, the purpose of the provincial Non-Resident Speculation Tax was to discourage speculation and thereby 'help to address unsustainable demand' in the Greater Golden Horseshoe area.

To ensure successful implementation, it is recommended that the Municipal Non-Resident Speculation Tax mirror the current provincial Non-Resident Speculation Tax provisions, as outlined further in this report, as it pertains to applicability, rebates, refunds and exemptions. Implementation is being recommended for January 1, 2025, in recognition of a current federal Prohibition on the Purchase of Residential Property by Non-Canadians Act which temporarily bans the purchase of homes by foreign buyers from January 2023 to December 2024.

Overall, the introduction of the Municipal Non-Resident Speculation Tax is expected to have a positive impact on reducing speculation, and where speculation may persist the Municipal Non-Resident Speculation Tax will positively contribute to the City's multi-year budgeting strategy.. Preliminary estimates indicate the City may generate up to $15 million in revenue in 2025, following the lifting of the federal ban.  These estimates have been reflected in the City's enhanced multi-year budget modelling introduced as part of the 2024 budget process and are intended to offset one-time bridging actions applied to the 2024 budget.

In addition, the New Deal Agreement with the Province identified the Non-Resident Speculation Tax as a key opportunity for the City and the Province to strengthen alignment of incentives to help ensure availability of housing to residents. Staff will continue to engage in discussions with the Province to promote alignment between the Non-Resident Speculation Tax and Municipal Non-Resident Speculation Tax, among other financial-related incentives, while monitoring any potential impacts of the federal ban in order to refine estimated impacts for 2025.