In 2017, the Ontario Provincial Government implemented a Non-Resident Speculation Tax (NRST), for foreign home buyers. Currently, the tax rate is set at 15% on a purchase or acquisition of interest in residential property located in the Greater Golden Horseshoe Region. Under certain circumstances, Foreign Nationals may be eligible for a rebate on the NRST.
Generally, NRST is payable by Foreign Nationals who do not meet an exemption. In most situations, Canadian citizens and Canadian Permanent Residents are exempt from this tax. However, even if a party is a Canadian citizen or Permanent Resident or a Foreign National who meet an exemption, NRST will still be payable if that party purchases or acquires interest in a property with other parties who are Foreign Nationals and who do not meet an exemption. Simply stated, if one party meets the exemption, but the other party does not meet the exemption, NRST is still payable. There is no reduction in the amount of NRST payable based on the amount of interest a Foreign National (who does not meet an exemption) acquires, even if their interest in the property is 1%.
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Why Did The Ontario Government Impose The NRST?
The government of Ontario stated that it was imposing the NRST in response to concerns about the housing market and rapidly rising prices. The stated purpose is to deter speculation in the Ontario housing market, particularly by foreign buyers. In the words of the Minister of Finance upon introducing the province’s Budget on April 27, 2017: “The government is concerned that non-resident investors – who are not planning on living in the province – have been purchasing Ontario homes primarily for speculation purposes.” Interestingly, the province did not cite any data or statistics to support introduction of the NRST.
Why Did The Ontario Government Impose The NRST?
The NRST was passed into law on June 1, 2017 and was worded broadly to catch foreign buyers whether they purchase directly, through corporations, or by using a Canadian citizen or permanent resident to hold title.
You may have to pay the NRST if you answer “Yes” to EACH of the following three questions:
Question 1: Are you a foreign entity or a trustee for a foreign entity (“Taxable Trustee”)?
- You are “foreign entity” if you are an individual who is not a Canadian citizen or permanent resident under Canadian immigration laws. This is not the same as whether you are Canadian-resident for tax purposes.
- Foreign entity includes corporations that are not incorporated in Canada (except public companies listed on Canadian stock exchange), corporations that are incorporated in Canada but that are wholly or partially controlled by foreign entities, and corporations controlled directly or indirectly by a foreign entity for income tax purposes. This refers to both de jure (share owner) control and de facto (factual) control, which can be a difficult determination to make.
- You are a Taxable Trustee if you are a foreign entity and hold title to the property for someone else, the beneficial owner. You are also a Taxable Trustee if you are a Canadian citizen, permanent resident of Canada, or a corporation holding title in trust for foreign entity beneficiaries (there is an exception for trustees of widely-held investment vehicles such as real estate investment trusts).
These rules have the potential to catch buyers by surprise. For example, if a single foreign entity “taints” the purchase and makes the entire price subject to the NRST. You, as the Canadian citizen buyer, are jointly and severally liable with the foreign entity to pay the NRST. Guess who the government is more likely to go after? Therefore, if you are buying property with someone else (other than your spouse – see exemption below), check if they are a foreign entity, foreign corporation or Taxable Trustee. Buyers who need someone on title to qualify for financing should get legal advice on the consequences if that person is a foreign entity.
It should be noted that the NRST also applies to unregistered transfers of a beneficial interest to foreign buyers. This may occur, for example, if a Canadian citizen initially purchases a property without being required to pay NRST and subsequently gives a beneficial interest to a foreign entity without putting them on title.
To assist in enforcing the NRST, the government has made it mandatory after May 5, 2017 to provide a statement on (among other things) buyers’ citizenship, immigration status, and information about any beneficial owners. This statement will be required in order to close a purchase.
Question 2: Are you are buying a residential property with 6 or fewer units?
- The NRST applies to purchases of residential properties that contain at least one and no more than six single family residences such as detached and semi-detached houses, townhouses and condominium units.
- This would also include duplexes, triplexes, fourplexes, fiveplexes and sixplexes. Buyers who purchase more than six units at the same time, e.g., multiple units in a condo, should get legal advice on whether the NRST applies.
- The NRST is not intended to apply to multi-residential rental apartments, agricultural land, or commercial land.
Question 3: Are you are buying within the Greater Golden Horseshoe Area?
The so-called Greater Golden Horseshoe Area (GGHA) is a broad area surrounding Toronto comprised of the following towns and cities: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.
Are There Any Exemptions?
Foreign entity purchasers who are refugees at the time of purchase are exempt. Foreign entities who are confirmed as “nominees” under special Ontario immigration programs at time of purchase are also exempt, provided the property is to be used as their principal residence. It seems unlikely these exemptions will apply to many home buyers.
The spousal exemption will probably be more relevant for most foreign buyers. This applies if a foreign entity purchases property jointly with a spouse who is a Canadian citizen, permanent resident, or a refugee or nominee exempt from the NRST (it is not clear at this point if jointly means “joint tenancy” or “tenancy in common,” which are two different ways to legally hold title).
How Can I Get A Rebate On The NRST?
A rebate (paid with interest) may be available for the NRST paid if a foreign entity:
- The NRST applies to purchases of residential properties that contain at least one and no more than six single family residences such as detached and semi-detached houses, townhouses and condominium units.
- This would also include duplexes, triplexes, fourplexes, fiveplexes and sixplexes. Buyers who purchase more than six units at the same time, e.g., multiple units in a condo, should get legal advice on whether the NRST applies.
- The NRST is not intended to apply to multi-residential rental apartments, agricultural land, or commercial land.
In order to be eligible for the rebates, the foreign entity must exclusively hold the property, or hold the property exclusively with his or her spouse. The property must also have been used as the foreign entity’s (and if applicable their spouse’s) principal residence for the duration of the period.
Based on our experience with federal income tax and GST/HST issues concerning real property, it will be critical for foreign entities to have sufficient documentation to prove that they qualify for rebates.
There are important deadlines for rebates. If you otherwise qualify, you may have to act quickly or risk missing the deadline.
Rebate applications are made using the Ontario Land Transfer Tax Refund/Rebate form for NRST along with all supporting documentation required to substantiate application for rebate.
If you are in the market to purchase a home in Ontario and are unsure whether you will be required to pay NRST or are eligible to obtain the rebate, we recommend working with a tax expert.
How Do I Apply For The Non-Resident Speculation Tax Rebate?
As mentioned previously rebate applications and submissions must be made using the Ontario Land Transfer Tax Rebate Form. Supporting documents are required to substantiate the application. In the event that the original tax was improperly paid or overpaid, it’s possible to apply for a refund using the Ontario Land Transfer Tax Rebate form.
In Ontario, land transfers are subject to an audit. This would include circumstances where a Canadian Citizen or Permanent Resident might hold a property in trust for a foreign entity. This would also include circumstances where an individual would undertake to avoid the Non-Resident Speculation Tax (with penalties to be paid).
The Ministry of Finance (Ontario) has very extensive parameters and guidelines when it comes to paying the Non-Resident Speculation Tax. There are equally extensive requisites when claiming a rebate. For many, this is an appropriate time to seek the expertise of a tax expert with expertise in real estate transactions.
Our Tax Experts Ensure The Highest Possible Rebate
For real estate investors of all types, our tax experts can be a valuable asset. We can help you figure out your eligibility for a specific tax rebate, and help you make the application in a timely manner. Our experts understand all of the government guidelines, rules and regulations. We streamline the application process for a stress free experience.
Every rebate claim requires supporting paperwork and documents. In fact, any mistakes or oversights might delay a claim or result in a denial of the claim altogether. When you work with our rebate experts, your rebate application is completed by one of our in-house experts. Prior to submission the document undergoes a final review by a second expert. After the documents are submitted we will work, on your behalf, with the appropriate government agency to handle any issues that might arise.
Our in-house tax experts provide a streamlined application process, with minimal stress to the applicant. You can find out more by calling 1-647-281-5399 or by visiting www.my-rebate.ca. One of our experts will be in touch to discuss your tax rebate questions, and to help out with your particular application
