After initially arriving in Canada out in British Columbia, a foreign buyers’ tax made its way to Ontario back in April 2017, with the slightly more ambiguous title of Non-Resident Speculation Tax.
It was set at 15% and applied to properties being bought by foreign nationals within the Greater Golden Horseshoe area. That’s a giant swath of land that includes not only the GTA but as far as Peterborough to Waterloo, Orillia to Niagara.
The GGH includes the following geographic areas:
- City of Barrie
- County of Brant
- City of Brantford
- County of Dufferin
- Regional Municipality of Durham
- City of Guelph
- Haldimand County
- Regional Municipality of Halton
- City of Hamilton
- City of Kawartha Lakes
- Regional Municipality of Niagara
- County of Northumberland
- City of Orillia
- Regional Municipality of Peel
- City of Peterborough
- County of Peterborough
- County of Simcoe
- City of Toronto
- Regional Municipality of Waterloo
- County of Wellington, and
- Regional Municipality of York
While this Non-Resident Speculation Tax (and 15 other measures in the Ontario Fair Housing Plan) did slow down the market for most of 2017, they did not have a lasting impact.
Back in April 2017, the average price for a property in the GTA was $918,000. As of March 2022, it’s $1,299,000. That’s an increase, on average, of about 41% in the five years since the measure was introduced. There was a temporary drop in prices in 2017 but we’ve seen prices rebound considerably since then.
Last month, the Ontario government announced an increase to the Non-Resident Speculation Tax. It increased from 15% to 20% and is now (as of March 30, 2022) being applied to all of Ontario, not just the Greater Golden Horseshoe area.
Who does the NRST impact?
As the name states, this tax is designed to hamper non-residents of Canada (i.e. foreign nationals or foreign corporations) from investing in Ontario residential real estate. It doesn’t prevent them from doing so, but the tax does it make it less lucrative, and the hope is clearly that it will have some impact on rising housing prices.
The Non-Resident Speculation Tax does not apply to permanent residents in Canada.
What type of real estate the does the NRST get charged on?
The NRST applies to the transfer of “designated land”, which is land that contains at least one and not more than six single family residences. Examples of land containing one single family residence include a detached house, a semi detached house, a townhouse or a condominium unit. Examples of land containing more than one single family residence that are subject to the tax include duplexes, triplexes, fourplexes, fiveplexes and sixplexes.
The NRST does not apply to other types of land such as land containing multi residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land.
How is the NRST calculated?
The NRST applies on the value of the consideration for the residential property. If the land transferred includes residential property and land used for non-residential purposes, the NRST applies on the portion of the value of the consideration attributable to the residential property. For example, if the value of the consideration of the transaction is $3,000,000 and contains one single family residence with a value of the consideration of $1,400,000, and land used for commercial purposes with a value of the consideration of $1,600,000, the NRST would apply to only the $1,400,000 portion.
The question that needs to be answered is of course, what exactly does “value of the consideration” mean? If it is a market transaction, where the residential property is transferred between unrelated parties, and the buyer (in whole or part) is a foreign entity or taxable trustee, then 20% of the purchase price is due as NRST. If it is a non-market transaction, a reasonable self assessment is required by taxpayers in apportioning the value of the consideration for the purposes of the NRST.
In what is clearly an attempt to prevent avoidance of the NRST, there is limited ability to prorate the value based on the ownership by a foreign entity. As an example, if three unrelated people buy a property, and two are Canadian citizens and one is a foreign entity, the full 100% of the value is subject to the NRST.
Who’s exempt from the NRST?
It is clear from a broad perspective who is exempt from the NRST, both on a citizenship basis and on a type of real estate basis. It becomes murkier when you look at certain circumstances where the NRST would appear to apply but there may be grounds for an exemption.
First, there is a Nominee Exemption, which is where foreign nationals in the Ontario Immigrant Nominee Program may be exempt from the NRST. They will need to be part of the program at the time of the purchase or acquisition, they will have to have applied or intend to apply to become a permanent residence of Canada and they have to certify they will occupy the property as their principal residence.
Next, there is the Protected Person (Refugee) Exemption. This is, as expected, an exemption that may be available if they have been conferred with refugee protection and they intend to occupy the property as their principal residence.
Finally, the third major category of exemption is the Spousal Exemption. The foreign national who buys with their spouse (and the spouse must be part of the purchase) where their spouse is a Canadian citizen may be able to qualify for an exemption from the NSRT. A spouse is defined as either someone who is married to the other or who have cohabited for three years or longer or are parents together of a child.
Canadian citizens who reside abroad are not subject to the NRST and it is not relevant as to whether they live in Canada or not.
We’re not surprised to see the increase in the tax rate for the Non-Resident Speculation Tax, nor the expansion of the tax to all parts of Ontario.
On the tax rate aspect, it is an easy political gain for the government, as the impacted parties are non-voting, non-residents.
The expansion of the NRST to all parts of Ontario also makes sense from both an optics as well as practical perspective. During the COVID pandemic, many parts of Ontario outside of the Greater Golden Horseshoe area have seen an influx of urban buyers taking advantage of the ability to work remotely. While it is questionable as to whether foreign buyers have been the ones purchasing in these areas, anything that is perceived to be helpful in curtailing price growth to the benefit of local (or in this case, national) residents is an easy call to make.
If you’re buying or selling real estate, you should make sure you work with agents who keep on top of changing regulations that could impact the level of competition or sale price. Don’t hesitate to get in touch with us if you want to discuss your situation!