The meaning of the idiom “a level playing field” is a situation that is fair to everyone, where everyone gets the same opportunity and a situation where everyone has an equal and fair chance of succeeding. It apparently originated in the late 1900s when then was unfair advantage given to one team in a field game if there was a slope on the field.
While providing a level playing field is supposed to mean a fair competition, where no advantage is shown to one side, it is regularly used now in situations where we’re tilting the odds in favour of one side of a situation.
The Ontario government made an announcement on October 25, 2022 about amendments to the Non-Resident Speculation tax and immediately we saw a number of pundits talking about how this is levelling the playing field in real estate. It’s a funny reaction to one group having an increased, additional tax on real estate purchases that other groups don’t incur when they buy. If you’re a non-resident looking to buy in Ontario, it likely felt like the playing field just tilted in favour of residents, not towards a more level field.
As of October 25, 2022, the NRST rate in Ontario will be increased from 20% to 25% and continues to apply to all parts of the province. The NRST applies to the transfer of “designated land”, which is considered land that contains at least one and no more than six single family residences.
Back in March, the government raised the NRST from 15% to 20%. The new increase to 25% makes this the highest provincial tax in Canada that exists to deter foreign speculation in the housing market.
We ran the numbers of the costs to buy in Ontario if you’re a resident or a non-resident and thought we’d share it here. There are a few different taxes that could apply depending on the type of property, the location of the property, the history of the purchaser and where the purchaser resides, so it can get a bit complicated. We explain how it works and run the numbers for the different situations so it’s clear. Well, clearer.
As of September, 2022, the average price for a property in Ontario is approximately $836,000. We’ll use that as our proxy for our various calculations on the purchase.
There are four possible taxes that can be incurred when you buy residential real estate in Ontario. Let’s review.
Buyer Tax #1 Provincial Land Transfer Tax
The first tax applies to ALL residential purchases in Ontario and is the Provincial Land Transfer Tax.
The tax is calculated on a sliding scale based on the purchase price, and for single family residences, there are thresholds at $55,000, $250,000 and $400,000.
There is a first-time home buyer’s refund of up to $4,000 on this tax that can be claimed once. While there is a scale for this refund as well, if the home being purchased is over $368,000, then the maximum refund of $4,000 will be available.
You can find a LTT calculator here on the Toronto Regional Real Estate Board site.
Based on the September, 2022 average price for a property in Ontario of $836,300, the Provincial Land Transfer Tax payable by all purchasers is $13,201. If you’re a first-time home buyer who has never owned real estate before, that will be reduced by $4,000 to $9,201.
Buyer Tax #2 Toronto Land Transfer Tax
The second possible tax on residential purchases in Ontario is the Toronto Land Transfer Tax.
It is just like the Provincial Land Transfer Tax but is paid to the City of Toronto for purchases that take place within the municipal boundaries of Toronto. It is in addition to the Provincial Land Transfer Tax and is calculated exactly the same way, with the same tax payable. Put simply, whatever you pay for the Provincial Land Transfer Tax, you will pay the same amount again to the City of Toronto if you are buying within the Toronto boundaries.
If you are a first-time home buyer, you can also receive a refund from the City of Toronto to be applied against the Toronto Land Transfer Tax. The amount for the City of Toronto LTT refund is slightly higher than the Ontario LTT first-time buyer refund. In Toronto, you can receive a refund of up to $4,475 against the Toronto LTT.
Based on the September, 2022 average price for a property in Ontario of $836,300, the Toronto Land Transfer Tax payable by all purchasers who buy within the municipal boundaries is $13,201. If you’re a first-time home buyer who has never owned real estate before, that will be reduced by $4,475 to $8,726.
Buyer Tax #3 Harmonized Sales Tax
The third possible tax on residential purchases in Ontario is the Harmonized Sales Tax, or HST.
HST can be charged on residential purchases if it is a new or mostly new (over 90% new construction) home in Ontario. While the HST calculation is straight-forward (13% of the purchase price is added to the cost of buying it), there are a few rebates that make it significantly more complex.
The HST New Housing Rebate is comprised of a federal rebate is equal to 36% of the federal portion of GST/HST, to a maximum of $6,300 and the Ontario provincial rebate, which is equal to 75% of the Ontario portion of GST/HST, to a maximum of $24,000.
Qualifying for the rebate can be challenging and depends on a number of factors such as type of property purchased, intended use (primary residence or investment use) and more.
If you are purchasing a new build in Ontario, always consult with your real estate lawyer to determine the tax consequences of your purchase and whether you qualify for any rebates.
For our purposes here, a home of over $450,000 will not receive a rebate on the federal portion (5%) and given the average price in Ontario is $836,300, that means that the $41,815 of federal HST tax will be an additional cost on the new build purchase.
The $66,904 (8% of $836,900) Ontario HST component may qualify for a rebate of up to $24,000, meaning that any new build will incur an Ontario HST that nets out to an additional $42,904 on the purchase.
If you are buying for investment purposes, you may be able to qualify for a New Residential Rental Property Rebate. Just like with the HST New Housing Rebate, this rental property rebate will not apply on the federal component of the HST as our purchase price of $836,300 is over the maximum purchase price of $450,000.
The provincial component of the HST may qualify for a rebate of 75% of the HST paid, up to a maximum rebate of $24,000 per qualifying rental unit. It is possible for both residents and non-residents to qualify for this, so based on our price of $836,300, that means we hit the maximum of $24,000 for this rebate.
When we put it all together, based on the September, 2022 average price for a property in Ontario of $836,300, the net HST you will pay on top of that price, if that property is a new build, is $42,904 in HST. If you’re a non-resident, you would have to be renting the property out for a minimum of a year to qualify for the $24,000 rebate on the provincial portion, otherwise you’d have to add that on top of the $42,904. Given that such a buyer is a non-resident, we will assume they are buying it as an investment and will rent it out, thus receiving the $24,000 rebate just like a resident buyer.
Buyer Tax #4 Non-Resident Speculation Tax
The fourth possible tax on residential purchases in Ontario is the Non-Resident Speculation Tax, or NRST.
The Non-Resident Speculation tax (NRST) is often colloquially called the Foreign Buyer’s Tax, so don’t be confused and think they are two separate things. In Ontario, we call it the NRST and in British Columbia it’s known as the Foreign Buyer’s Tax, but in either case it’s a tax on non-residents.
As of October 25, 2022, the NRST in Ontario is a straight-forward 25% of the purchase price. If you aren’t a Canadian citizen, a Permanent Resident or a Protected Person, you owe an additional 25% of the purchase price. It applies to the transfer of “designated land”, which is considered land that contains at least one and no more than six single family residences.
Based on the September, 2022 average price for a property in Ontario of $836,300, the NRST payable by all non-resident purchasers is a whopping $209,075.
So, how level is that field now?
When we look at the four possible taxes on the average purchase price for a single-family residential property in Ontario, we see that the field is in fact clearly tilted in favour of residents versus foreign buyers.
While there are four possible taxes, the only one that doesn’t treat residents and non-residents equally is (naturally) the Non-Resident Speculation Tax (NRST). On the average purchase of a property in Ontario of about $836,000, a foreign buyer will need to have $1,058,000 available to cover the closing costs for the home. That’s an extra $222,000, comprised of the NRST and the Land Transfer Tax.
If the foreign buyer is interested in buying a new home and renting it out to a tenant, they will need to be prepared to add another $43,000 for the HST tax on the property. If they want to buy that new home in Toronto, then the Toronto Land Transfer Tax adds another $13K onto the funds required.
When all is said and done, if a non-resident decides to buy a new construction property in Toronto and they’re lucky to find one at the average Ontario price of $836,000, they’re looking at over 33% in taxes on top of their purchase price. When you add that $278,000 to the base purchase price, a non-resident needs over $1.1M to buy that $836,000 home.
While not many people in the world would think Ontario real estate is a bargain, if you’re a non-resident considering buying in the province, the list price looks like a positive steal. If you or someone you know is considering buying in Toronto or the surrounding areas, it pays to work with agents who understand the true cost of the deal. Get in touch with us and we’ll help make sure it’s the right move.
