May

Foreign Home Buyer Tax / Non-Resident Speculation Tax

Posted By: Bobby B. Solhi on May 12, 2017 at 11:08:28 in All

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Ontario’s  Foreign Home Buyer Tax / Non-Resident Speculation Tax

Ontario has introduced a Foreign Home Buyer Tax / Non-Resident Speculation Tax  (“NRST”) effective April 21, 2017.

Often referred to as a foreign home buyer tax, the NRST is a 15% tax that applies to the purchase or acquisition of an interest in residential real property located in the Greater Golden Horseshoe (GGH) area by an individual, foreign corporation, or “taxable trustee”.

The NRST is in addition to the provincial land transfer tax and the municipal land transfer tax in Toronto.

An individual that is a Canadian citizen or permanent resident but lives abroad are excluded from this tax.

Who does it apply to?

Foreign Home Buyer Tax / Non-Resident Speculation Tax applies to transfers or acquisitions made by a foreign individual, foreign corporation or a taxable trustee.

  • A foreign corporation is a corporation which is:
    • not incorporated in Canada;
    • incorporated in Canada but is controlled in whole or in part by a foreign corporation, unless the shares are listed on a Canadian stock exchange; or
    • “controlled directly or indirectly” by a foreign corporation or non-resident person
  • A taxable trustee is:
    • A foreign corporation holding title in trust for beneficiaries, or
    • Canadian citizens or permanent residents holding title in trust for foreign persons.

The scope of persons seems quite broad and would potentially implicate any non-resident person that attempts to use a bare trust or corporate vehicle to acquire residential real property in the GGH area.  What about partnerships?

What type of residential property?

The Foreign Home Buyer Tax / Non-Resident Speculation Tax only applies to residential real property that contains at least one, but not more than six, single family residences.   The NRST will not apply to multi-residential rental apartment buildings with more than six units, or agricultural, commercial, or industrial land.

The NRST applies to the value of consideration in respect of the transfer (including a beneficial transfer) of a residential property.  If the transfer relates to residential and commercial property, the tax will only apply to the portion of residential property.

It will apply to the entire of the value of consideration for the transfer, even if the foreign entity is acquiring only a portion of the interest.   All transferees to that transfer will be jointly and severally liable for any NRST payable.

Where must the real property be located?

The tax applies to real property located in the GHH. The GGH includes Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington, and York.

For a detailed map of the included area please see here.

When does this tax begin to apply?

The effective date for the NRST is April 21, 2017.

There was a transition period between April 21 and May 5, 2017.  All transfers registered during the transition time that did not include a statement regarding NRST, will not incur penalties or have the registration affected.   However, after May 5, 2017 it is mandatory to include a statement regarding the tax.

Exemptions from the Foreign Home Buyer Tax / Non-Resident Speculation Tax 

The NRST does not apply to mutual fund trust, real estate investment trust (REIT), specified investment flow-through trust or refugee purchasers. Furthermore, there are some rebates that may be available for persons who become Canadian citizens or permanent residents, are full-time students, or who work full-time in Ontario for certain periods.

To qualify for the rebate, the property must have been used as the principal residence of that person.

The Minister has also stated that there will be anti-avoidance rules that the government may rely upon in the course of audits and reviews to ensure that this tax is not being avoided in a manner that is not consistent with their intention.

Policy Question

Given the name of the tax as a “non-resident speculation tax” shouldn’t the policy address foreigners that purchase real property in the GGH with a view or intent of “speculation”?  There does not appear to be any element in the policy outlined by the Minister, to date, that ties this tax to an intent to speculate on real property – it appears to only focus on the act of acquiring while non-resident.   What if the foreigner is purchasing non-multi-unit Ontario residential real property to earn long term rental income?  What if the foreigner person partners with a Canadian resident to acquire?

Not yet law

The legislation to implement the Foreign Home Buyer Tax / Non-Resident Speculation Tax  is not yet complete.  Even when it is, it will require the approval of parliament before it is law.  Given the clear majority of the current government, however, it is expected to pass and become law effective April 21, 2017.

*Bobby B. Solhi is a tax lawyer and partner at TaxChambers LLP

*Osnat Nemetz is a Student-At-Law at TaxChambers LLP

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