New Ontario Non Resident Speculation Tax Features
Canadian real estate has been a target of hot money investments from all over the world in recent years, with especially large flows from Asia. The Ontario Government has implemented measures to help more people find affordable homes, protect buyers and bring stability to the Ontario real estate market. For that reason, they passed the Non-Resident Speculation Tax.
The Ontario Non Resident Speculation Tax (NRST) is fundamentally a 15% tax on a purchase or investment in a residential property by any non citizen, non permanent resident or foreign company from outside of Canada. The point is to put local citizens and long-term residents who actually want to live in the area, on the same footing with foreign entities. While those outside entities are still welcome to bid and buy residential buildings, they have a higher base price to do so.
The NRST is only for homes and buildings up to six residences. It does not apply to commercial or industrial properties. Large apartment buildings with more than six residences are also excluded from the legislation because they depend on the local economy and could cause an increase in rents for local residents if the NRST was applied.
It applies only to people or companies that invest in the Greater Golden Horseshoe (GGH) region which is the most populated area of Ontario. Specifically, it includes the communities of Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York. These areas have been the most actively invested by foreign citizens and companies in recent years.
This law is implemented as of April 21, 2017. So all purchases after this date must pay the NRST. All foreign citizens must take this into account when making their purchases and assumptions about their investment return.
A foreign person is one defined by the Immigration and Refugee Protection Act as an individual who is not a Canadian citizen or permanent resident of Canada. Similarly, foreign companies are not 1) incorporated in Canada 2) controlled by a foreign entity or 3) is defined as foreign by section 256 of the Income Tax Act. The only exception to this definition is if the foreign company is listed on a Canadian stock exchange because that demonstrates a long-term interest in the Canadian economy. The NRST also does not apply to a mutual fund trust, real estate investment trust or specified investment flow-through trust because these funds are long-term established entities in the country.
Companies cannot set-up local shell companies to avoid the tax as the taxable trustee is the person that counts for the reasons of the NRST. The beneficial owner and investor is the one that implicates the tax, not any local shell organization.
A foreign entity cannot team with local companies to avoid the tax either. For example, if a foreign company was a joint bidder to buy a property, the tax would still be required. Even if the foreign company is a minority investor on the project, 100% of the NRST would still be due for the transaction.
In certain cases, the NRST can be waved by nominees through a special Ontario Immigrant Nominee Program. However, these are offered on a case by case basis and should not be counted on.
Oakville Law is a leading real estate law firm in Canada. Partner Robert Rose has decades of experience and has seen every type of transaction imaginable. For more information, please contact us.