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What foreign investors need to know

Jul 17, 2017

Do you Need to Pay the Non-Resident Speculation Tax?

Since April 21, 2017, certain foreign entities who purchase residential property in the Greater Golden Horseshoe Region must pay a 15% non-resident speculation tax (“NRST”). Here is a helpful list of questions and answers that could be helpful to foreign investors (or their real estate agents) in determining whether NRST must be paid on the acquisition of real estate in Canada.

Types of Property

Q: Are certain properties exempt from the NRST?
A: The NRST only applies to the transfer of residential land containing one to six single-family residence(s). For example, a foreign investor would have to pay the NRST on the acquisition of a detached house, a townhouse, a condominium, a duplex, a triplex, a fourplex, a fiveplex or a sixplex. However, the NRST does not apply to multi-residential rental buildings with more than six units, to agricultural land, to commercial land or to industrial land.

Q: Is there an exemption for the acquisition of 7 or more condominium units?
A: In such a situation, each unit is considered land containing one single-family residence. As such, the foreign investor must pay the 15% NRST on the entire purchase.

Q: What if the land transferred to a foreign entity includes both residential property and another type of property?
A: The NRST applies on the portion of the consideration relating to the residential property. For example, if the land was purchased for $1,000,000.00 and contained a townhouse with a value of $400,000.00 and commercial land with a value of $600,000.00, the 15% NRST would apply to the $400,000.00 portion only.

Foreign Entities

Q: Which foreign entities must pay the NRST?
A: The NRST applies to every transaction where residential property is transferred, in whole or in part, to (1) individuals who are not Canadian citizens or permanent residents, (2) corporations formed outside Canada or controlled by individuals described in (1), or (3) trustees who are or hold the property for individuals or corporations described in (1) or (2).

Q: Are Canadian citizens also responsible for the NRST if they purchase residential property with a foreign entity? A: Yes. Where the NRST applies, each person acquiring part of the residential property is jointly and severally liable for all NRST payable.

Q: Are there exemptions to the NRST?
A: An exemption is available to the following foreign nationals: (1) nominees under the Ontario Immigrant Nominee Program who applied to become a permanent resident of Canada, (2) refugees, and (3) spouses of Canadian citizens, permanent residents of Canada, nominees or refugees. However, to qualify for the exemption, the transferee(s) must occupy the property as their principal residence.

Q: Are there rebates for the NRST?
A: A rebate is available to the following foreign nationals: (1) foreign nationals who become permanent residents of Canada within four years of the acquisition, (2) foreign nationals enrolled for full-time studies at an Ontario college or university for a continuous period of at least two years since the acquisition, and (3) foreign nationals who have worked full-time in Ontario under a valid work permit for a continuous period of at least one year since the acquisition.
However, to qualify for the rebate, the foreign national must be the sole owner of the property and must occupy the property as his/her principal residence.

For more information regarding the NRST, please contact a lawyer or consult the Ministry of Finance’s bulletin on the NRST at http://www.fin.gov.on.ca/en/bulletins/nrst/nrst.html.