Ontario’s 15% Non-Resident Speculation Tax applies to Golden Horseshoe Residential Real Estate

In recent years, Ontario’s residential real estate market has been characterised by rapid price increases- especially around the Greater Toronto Area. These increases have spurred fears that Ontario’s real estate market is currently experiencing a price bubble. In response to these fears, Ontario’s policy makers have implemented a non-resident speculation tax (“NRST”) to discourage non-residents from engaging in real estate speculation. Commencing on April 21, 2017, the NRST is a 15% tax on the purchase or acquisition of an interest in residential property located within the Greater Golden Horseshoe. British Columbia instituted a similar foreign buyer tax in August 2016 amid much controversy.

I. Individuals subject to NRST 

The NRST applies to purchasers that are (1) foreign nationals, (2) foreign corporations, and/or (3) taxable trustees.

The definition of foreign national is contained within the Immigration and Refugee Protection Act and includes individuals that are not Canadian citizens or permanent residents of Canada. 

Foreign Corporations are those that are: 

(1) not incorporated in Canada;

(2) controlled in whole or part by a foreign entity and not listed on a Canadian stock exchange;

(3) controlled directly or indirectly by a foreign entity for the purposes of section 256 of the Income Tax Act. 

Taxable trustees subject to the NRST include (1) foreign entities holding title in trust for beneficiaries or (2) Canadian citizens, residents, or corporations holding title in trust for foreign beneficiaries. Taxable trustees should be aware that they are subject to the NRST if either the trustee or the beneficiary is a foreign entity.

 II. Properties subject to NRST 

The NRST applies to residential properties containing at least one, but not more than six, single family residence(s). Examples of single family residences include fully detached homes, semi-detached homes, townhouses, condominiums, and apartment units. Examples of residential properties containing more than one family residence include duplexes, triplexes, fourplexes, etc.

NRST is not applicable to rental apartment buildings that contain more than six units, commercial property, industrial property, or agricultural property. Agricultural land containing a single residence is deemed to be exclusively agricultural. 

When a property includes a residential component combined with another land use type, the NRST is only applicable to the residential component of the property.

The NRST applies to residential properties purchased in the following communities: Brant, Dufferin, Durham, Haldimand, Halton, Niagara North, Niagara South, Northumberland, Peel, Peterborough, Simcoe, Toronto, Victoria, Wellington, Wentworth, and York. 

III. New purchaser disclosures under the NRST and the Prescribed Information Form 

Ontario’s NRST has several legal implications for purchasers and their real estate lawyers. In accordance with the NRST, the law now requires purchasers to disclose information to the government regarding their residency, citizenship, and intentions for the purchased property. 

The Provincial Government is now collecting data to support the administration of the new NRST. This data will be used to support policy decisions and changes to the NRST and land transfer tax. Information is collected on the Prescribed Information for the Purposes of Section 5.0.1 Form (“Form”), and is required from every purchaser who acquires land that contains one to six single family residences. The prescribed information must be collected for each conveyed property with a unique PIN. The prescribed information does not need to be collected or submitted for the conveyance of storage lockers, parking spaces, rights of way, or easements. 

The Form’s submission became mandatory on April 24, 2017. From April 24 to May 5, the Ministry created a grace period, whereby Forms containing an error will not incur a penalty. Deficient Forms submitted after May 5 will incur a penalty. 

The Form is not required to be submitted by purchasers acting as a trustee for a (1) mutual fund trust, (2) real estate investment trust, or (3) specified investment flow-through trust.

 The prescribed information collected for the purposes of section 5.0.1 includes: 

• Whether the purchaser, or their family, intends to occupy the home or land as a principal residence after the purchase;
• The type of dwelling (detached, semi-detached, condominium, cottage, etc);
• Whether the purchaser intends to lease any portion of the property after purchase;
• In the case of individual purchasers, whether they are a resident, citizen, or permanent resident;
• In the case of corporate purchasers, information regarding the corporation’s ownership, control, and incorporation;
• In the case of purchasers actings as trustees, information regarding the beneficial owners. 

The increasing price of residential real estate in the Greater Golden Horseshoe makes home ownership less affordable. The NRST was designed to lower housing demand (and price) by discouraging non-resident speculation. Currently, the NRST is in its third week of operation- it remains to be seen whether the NRST will achieve its intended purpose of cooling the housing market and reducing foreign speculation. 

Purchasers need to understand whether the NRST is applicable to their purchase. Incorrectly disclosing a purchaser’s residency can result in monetary penalties and/or tax assessments. Real estate lawyers can assist purchasers by determining whether the NRST is applicable or if it can be avoided, and by making the necessary information disclosures to the provincial government. SmithValeriote welcomes the opportunity to navigate residential and commercial real estate purchasers through their transaction.