New tax on foreign property owners will hurt Canadian border community, mayor warns

The mayor of a Canadian border community is warning that the federal government's new foreign-owned property tax will hurt the local economy and damage its relationships with seasonal residents.

In a two-page letter sent to Finance Minister Chrystia Freeland on Tuesday, Wayne Redekop — mayor of Fort Erie, Ont. — outlined his concerns about the unintended consequences of the new Underused Housing Tax and called on the federal government to make changes.

"I fear that you and the government do not understand the dynamic of the border that we share with the United States," Redekop wrote.

"Fort Erie's seasonal residents are not only good friends and relatives … they are important customers of our local businesses."

The new Underused Housing Tax took effect last year. It compels foreign property owners to pay a 1 per cent annual tax on the value of any residential property deemed "underused" or "vacant" by the Canada Revenue Agency (CRA).

The tax is meant to help cool down Canada's housing market, particularly in large cities where housing is in short supply. It aims to stop foreign investors from parking their money in residential real estate that ends up sitting empty. 

While the tax offers significant exemptions for seasonal property owners, they apply largely to rural and vacation communities.

Some cottages in more populated regions do not qualify. Those regions include parts of southern Ontario such as the Crystal Beach area of Fort Erie.

Because some cottages there happen to be located within the St. Catharines-Niagara Metropolitan Census Area, they are not exempt from the tax.

"I can assure you that the tax is causing great anxiety, anger, disappointment and uncertainty among our seasonal residents," Redekop wrote in the letter. "They add a vital element to the richness of life in our community."

Government sticking with policy

The tax has led to political threats of retaliation against Canadians who own property in the U.S. But Ottawa is standing by the policy for now.

"Our government was elected on a platform that included a national tax on non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused, to help address concerns about the impact of foreign investment on housing costs and worries about Canadians being priced out of the housing market," said Adrienne Vaupshas, a press secretary in Freeland's office. 

"The government will continue to monitor the impact of this measure."

CBC News asked Freeland's office a series of questions about this policy last week, before Redekop sent his letter.

Redekop said in that letter he understands the purpose of the tax is to "prevent offshore investors from acquiring Canadian residences and keeping them off the market for those in need of permanent housing."

But he argued the exemptions are "inadequate" and are being applied unfairly. 

"Our town is a mix of urban and rural areas," Redekop wrote. "… The seasonal homes within the urban boundaries of Fort Erie are subject to the underused housing tax, [while] those that are located outside our urban boundaries are not.

"That in itself highlights an unfairness regarding the tax."

Redekop said he would like to see an additional exemption based on time spent in the property. Since most American cottage owners spend the spring and summer months in Canada, he says, there should be an exemption for anyone who spends at least three months of the year at the property.

An American lawmaker who represents dozens of these property owners has told CBC News he's open to any solutions that leave his constituents exempt.

"If that's not resolved, we need to look at some kind of measure that will enhance the leverage that we have," said Rep. Brian Higgins, a Democrat representing the border community of Buffalo, N.Y.

A spokesperson for his office said the issue is being discussed with stakeholders, the U.S. embassy in Canada and members of Parliament.

Redekop said many seasonal residents don't know what's expected of them under this tax. All foreign property owners, whether they are exempt from the tax or not, now have to register with the CRA and file a return by April 30.

According to a Government of Canada website, the minimum penalty for failing to file a return is $5,000. 

"Many of our seasonal residents will have little if any knowledge of the reporting requirement," said Redekop.

"The Town of Fort Erie treasurer has reached out to Canada Revenue Agency several times, with no response, to obtain information that would assist us in alerting seasonal property owners of their obligations under this legislation."