Non-Resident Speculation Tax: The Foreign Homebuyer Overview

Over the past decade, Ontario’s real estate market has experienced sharp price increases partially as a result of increased foreign investment activity.  In response to concerns over housing affordability and market stability, the Ontario Government enacted the Non-Resident Speculation Tax (NRST). The NRST became effective as of April 21, 2017 and impacts an array of home purchasers, both foreign and Canadian.  This post provides a brief overview of how the NRST impacts foreign individuals only.

NRST: The Mechanics

The NRST is a 15% tax on the purchase value of residential property located within Ontario’s Greater Golden Horseshoe Region, which includes the GTA.  This 15% tax applies in addition to the general Ontario Land Transfer Tax (and if applicable, the Toronto Land Transfer Tax).  While both the NRST and Land Transfer Taxes are calculated separately from the purchase value of the property and neither tax is payable on top of one another, this additional tax is a considerable amount of money that factors into homebuyers’ willingness to proceed with a real estate purchase.  

The NRST applies to land containing one to six single family residences.  Examples of single family residences include:

• Detached homes;
• Semi-detached homes;
• Townhouses; and
• Condominium units.

For further clarity, it should be noted that in cases where multiple condominium units are being purchased, each unit would be subject to the NRST.  

  NRST: The Players

The NRST applies “foreign nationals” which are defined as foreign individuals who are not Canadian citizens or permanent residents of Canada.  

An exemption to the NRST may be available in these limited circumstances:

1. Nominee– If a foreign national is nominated under the Ontario Immigrant Nominee Program at the time of the property purchase, and has applied or certified that they will apply to become a permanent resident of Canada.
2. Spouse– If a foreign national jointly purchases property with a Canadian citizen, permanent resident or nominee that is their spouse. 
3. Protected Person– a foreign national that is conferred refugee protection in accordance with the Immigration and Refugee Protection Act at the time of purchase.

In order to qualify for an exemption a foreign national, and their spouses if applicable, must certify they will occupy the purchased property as their principal residence.  

Rebates of the NRST may also be available in limited circumstances:

1. If a foreign national becomes a permanent resident of Canada within four years from the date of purchase.  The application for a rebate must be made within 90 days of the foreign national becoming a permanent resident.  
2. If a foreign national is enrolled full-time for a continuous period of at least two years at an approved institution in Ontario from the date of purchase.  
3. If a foreign national has legally worked full-time under a valid work permit in Ontario for a continuous period of at least one year since the purchase.  

NRST: The Consequences

While the NRST is primarily focused on taxing foreign nationals, Canadian citizens and permanent residents should also be aware of its impact.  The NRST applies to the purchase value of the residential property if any one of the purchasers is a foreign entity.  In addition, each purchaser is jointly and severally liable for any NRST payment, meaning that if a foreign national does not pay the NRST, all other purchasers would be required to pay it, regardless if they are Canadian citizens or permanent residents!

Let’s look at an example of this happening:

Adam, Bruce, Catherine and Daniel are buying a house together in Etobicoke for $1,000,000.00.  Each person pays 25% of the price for equal shares of the property. Adam, Bruce and Catherine are Canadian citizens.  Daniel is a wealthy real estate investor from Portugal.  

In addition to the Ontario Land Transfer Tax and the Toronto Land Transfer Tax, the NRST (15%) applies to the full value of the $1,000,000.00 property ($150,000.00).  Despite Daniel being the only foreign national, all the purchasers are liable to remit the taxed amount. If Daniel does not take responsibility for this additional taxed amount, the CRA can find Adam, Bruce and Catherine liable for fulfillment of the outstanding amount.  

This example is just one of many serious considerations Canadians have to assess when purchasing property with a foreign national.  The complexity of the NRST and its effects on both Canadian citizens and foreign nationals is further muddled by exemptions and applications for NRST rebates!

Conclusion

If the sheer cost of a property was already daunting, the process of ensuring your tax compliance is an additional, albeit painstaking, consideration.  Whether you are a Canadian citizen or a foreign homebuyer, the NRST’s introduction creates new complexities for buyers alike. The NRST makes a huge difference in your financing and ability to navigate costs in a real estate investment.  Care should be taken to engage a real estate lawyer at the first opportunity to ensure that your transaction is safeguarded from tax burdens and in compliance with up-to-date legislation. In some cases, the involvement of foreign nationals in real estate purchases requires the expertise of other professionals such as family and immigration lawyers and expert accountants.  In all cases, an important first step should be engaging a real estate lawyer to discuss your matter on a confidential and professional basis.

Disclaimer: Information made available on this website in any form is for information purposes only. It is not, nor is it intended to replace, legal advice. Contact Chu & Huang Law to discuss a specific legal issue and please note that contacting Chu & Huang Law, on its own, does not create a lawyer-client relationship.