Tax Insights: Ontario non-resident speculation tax – Recent changes

In brief

On March 29, 2022, the Ontario government announced changes to the province’s non-resident speculation tax (NRST) that, effective March 30, 2022:

• increase the rate to 20% (from 15%)
• expand the tax to apply provincewide
• restrict eligibility for exemptions from the tax

This Tax Insights discusses these changes and provides a refresher on the Ontario NRST. 

In detail

Who is liable for the tax

The Ontario NRST is imposed on foreign entities and taxable trustees that purchase or acquire certain residential property located:

• after March 29, 2022, in the province of Ontario
• before March 30, 2022, in the Greater Golden Horseshoe* region of Ontario

^{*The Greater Golden Horseshoe includes the following municipalities: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.}

Transitional provisions exempt the conveyance of land located outside of Ontario’s Greater Golden Horseshoe region from the NRST if it is pursuant to an agreement of purchase and sale entered into before March 30, 2022 (or an assignment of an agreement before that time), unless the land is conveyed to another foreign entity or taxable trustee other than the purchaser or assignee (and their spouses). Despite its description, the NRST applies regardless of whether a property is acquired with a speculative investment intention.

Foreign entities and taxable trustees

Foreign entities are:

• foreign nationals – individuals that are not Canadian citizens or permanent residents
• foreign corporations – corporations that are:
  • not incorporated in Canada, or
  • incorporated in Canada, have no shares listed on a Canadian stock exchange, and are subject to de facto control, as determined for income tax purposes, by one or more:
    • foreign nationals
    • corporations not incorporated in Canada, or 
    • corporations that would, if each share owned by a foreign national or foreign-incorporated corporation were owned by a particular person, be subject to de facto control by the particular person

A taxable trustee is a trustee of a trust (other than a mutual fund trust, a real estate investment trust (REIT) or a specified investment flow-through (SIFT) trust, as defined for income tax purposes) with:

• at least one trustee that is a foreign entity, or
• no foreign entity trustees if a beneficiary of the trust is a foreign entity

Residential property subject to the NRST

For the NRST to apply, the land transferred must contain at least one, but not more than six, single family residences. A detached house, semi-detached house, townhouse and condominium unit would each be considered one single family residence. 

When multiple condominium units are transferred together under a single conveyance, each unit would be considered land containing one single family residence and would therefore be taxable. Purchases of duplexes, triplexes, fourplexes, fiveplexes and sixplexes would also be subject to the tax.

The NRST does not apply to residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land. 

How is the tax calculated and paid

The tax is:

• after March 29, 2022, 20%
• before March 30, 2022, 15%,

of the value of the consideration for the residential property.

A transitional provision confirms that the tax rate for conveyances of land located in Ontario’s Greater Golden Horseshoe region will be 15% if the agreement of purchase and sale was entered into before March 30, 2022. This transitional provision will not apply if the land is conveyed to another person other than the purchaser or assignee (and their spouses). 

If the land transferred includes both residential property and another type of property, the NRST applies on the portion of the value of the consideration attributable to the residential property. If any of the transferees of residential property is a foreign entity or taxable trustee, the NRST applies to 100% of the value of the consideration for the transfer. Each transferee will be jointly and severally liable for any NRST payable, even if the other transferees are Canadian citizens or permanent residents.  

The NRST also applies to unregistered dispositions of a beneficial interest in residential property, when the purchaser of the interest is a foreign entity or taxable trustee. 

Exemptions

Exemptions from the NRST are available to a foreign national who:

• is confirmed under the Ontario Immigrant Nominee Program (a “nominee”) at the time of the purchase or acquisition if the property is used as a foreign national’s principal residence
• is conferred the status of “convention refugee” or “personal in need of protection” (a “refugee”) under the Immigration and Refugee Protection Act at the time of the purchase or acquisition
• has a spouse who is a Canadian citizen, Canadian permanent resident, nominee or refugee if the foreign national jointly purchases residential property with that spouse (but not jointly with any other person)

Paying the tax

The NRST is payable at the time of registration through Ontario’s electronic land registration system, Teraview, although payment in advance of registration is possible. NRST on paper registrations must be prepaid in advance of the registration.

Rebates

Before March 30, 2022, a rebate of the NRST could be obtained if the foreign national:

• became a Canadian citizen or permanent resident within four years of the date of the purchase or acquisition (the Permanent Resident rebate)
• was a student who had been enrolled full-time for at least two years from the date of purchase or acquisition in an “approved institution” (the International Student rebate), or
• had legally worked full-time in Ontario continuously for one year since the date of purchase or acquisition (the Foreign National Working in Ontario rebate)

After March 29, 2022, only the Permanent Resident rebate will be available. To be eligible for a rebate, the property must:

• be held solely by the foreign national or by the foreign national and his or her spouse, and 
• have been used as the foreign national’s (and if applicable his or her spouse’s) principal residence for the entire period  

Rebate applications must be: 

• made using the Ontario Land Transfer Tax Refund/Rebate Affidavit
• accompanied by required supporting documentation 
• received by the Ontario Ministry of Finance within 90 days of the transferee becoming a permanent resident of Canada 

Transitional rebate rules

The International Student or Foreign National Working in Ontario NRST rebates may be available to a foreign national who purchased land within Ontario’s Greater Golden Horseshoe region and a binding agreement of purchase and sale was signed before March 30, 2022 (and not assigned to other persons after March 29, 2022), subject to their meeting transitional eligibility rules.

Eligible applicants for these transitional rebates must submit the Ontario Land Transfer Tax Refund/Rebate Affidavit to the Ontario Ministry of Finance, along with the required supporting documentation, by the earlier of:

• four years after the day on which the NRST became payable
• March 31, 2025

Other Ontario land transfer taxes

The NRST applies in addition to the province’s general land transfer tax and any municipal land transfer tax (e.g. Toronto’s Municipal Land Transfer Tax). 

The takeaway

The NRST makes home buying in Ontario more expensive for foreign purchasers. It is part of a broad package of initiatives introduced by the provincial government with the stated intention of making home ownership more affordable. 

The Ontario government’s plans also include:

• encouraging Ontario municipalities to impose a vacant homes property tax, such as the one implemented in Toronto
• increasing the pace of new home construction in the province

These initiatives follow federal proposals to stabilize Canada's housing market through a national vacant housing tax on non-Canadian, non-resident owners, as well as the introduction and/or proposal to introduce foreign buyer’s taxes by other provinces (e.g. British Columbia, Nova Scotia). The 2022 federal budget proposed a temporary ban on purchases of certain residential property in Canada by foreign entities and individuals (with exemptions similar to those under the Ontario NRST).  

The extension of Ontario’s NRST to properties throughout the province, and exemptions and transitional changes to the available rebates, may make navigating the tax payment process more difficult. If you or your business plan to acquire residential property in Ontario and may be considered a foreign entity, or may register ownership with a taxable trustee, ensure that you take into account the potential application of the NRST.