Revenue from Toronto's estimated speculation tax has fallen by 36%

It's been an interesting few weeks on the foreign home buying front, with the federal government announcing a two-year extension to the foreign purchase ban that began in early 2023.

The federal ban will now remain in effect until Jan. 1, 2027, according to a federal announcement issued Sunday. Until last weekend, the ban was set to expire at the end of 2025.

It's worth noting that this latest maneuver by the feds closely follows the unveiling of Toronto's proposed Municipal Non-Resident Speculation Tax (MNRST), and the two are somewhat intertwined.

Like the ban on foreign buyers, the proposed MNRST is intended to curb speculative home purchases in cases where non-resident investors are involved. The idea behind both the ban and the tax is that speculative home buying will help increase housing affordability (or at least prevent it from gradually deteriorating) because Torontonians will have more supply, less competition and may not have to sign away their life savings (and the right to name their first-born child) in order to make a competitive offer on the house.

Unlike the Fed's ban on foreign buyers, the MNRST is a carefully crafted revenue vehicle, and its revenue potential has been significantly reduced.

According to Chief Financial Officer and Treasurer Stephen Conforti's mid-January report, MNRST is expected to have two key outcomes. The obvious is that it is intended to prevent and reduce speculative buying, but also that the tax is intended to “contribute positively” to the City of Toronto's multi-year budget strategy. MNRST is expected to generate $14 million to $15 million in revenue in 2025 alone.

However, this revenue forecast was dependent on the federal government lifting its ban on foreign buyers by the end of 2025. Now that the ban runs through 2027, the project's proposed MNRST revenue has dropped to $9.6 million. While $9.6 million is not a small amount, it represents a 36 percent drop from the optimistic estimate of $15 million.

MNRST's revenue projections were included in a mid-January report by Chief Financial Officer and Treasurer Stephen Conforti. (City of Toronto)

Conforti's report noted that these estimates are based on revenues collected from Ontario's non-resident speculation tax (NRST), which was introduced in 2017 and will increase to 25% at the end of 2022.

The province has collected more than $1 billion in tax revenue between 2017 and 2022, and nearly half of that revenue can be found in Toronto home purchases.

“With the 2023 data still being finalized and verified, the province estimates that NRST revenue related to Toronto real estate purchases will decrease by more than 65% in 2023, resulting in an estimated $31.2 million for the year compared to $91.5 million in 2022. Conforti said.

Provincial NRST returns included in Conforti's mid-January report. (City of Toronto)

Meanwhile, the MNRST, which was approved by the city's Executive Committee last week and will go to City Council on Tuesday, is just one of a set of new revenue streams proposed by Toronto Mayor Olivia Chow in September. These include the new Streamlined Municipal Land Transfer Tax (MLTT) proposed in January 2023. The new MLTT rates came into effect on January 1, 2024. Chow also raised the vacant house tax to 3%.

These policy levers are designed to help fill Toronto's operating deficit, which currently stands at about $1.8 billion, according to multiple reports from senior City of Toronto officials.