Non-Resident Speculation Tax (All You Need to Know)

By: Joshua Clarke & Michael Hanton

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This guide explains Ontario’s Non-Resident Speculation Tax (NRST), a tax on certain purchases of residential property by foreign individuals and entities.

INTRODUCTION

The Ontario government introduced the NRST as part of its Fair Housing Plan. The tax aims to curb speculative activities by foreign buyers that can artificially drive-up housing prices, making affordability a challenge for Ontario residents. While intended to benefit residents (i.e. by making it easier to enter or move up in the real estate market), the NRST adds significant costs for foreign buyers, potentially impacting their ability to invest in Ontario real estate.

Non-compliance or misunderstanding of the tax’s requirements can lead to financial penalties and legal complications. For those considering property transactions in Ontario, a thorough understanding of the NRST is essential.

WHAT IS THE NRST?

The NSRT is a tax on the purchase or acquisition of an interest in residential property within Ontario by:

1. Foreign Nationals: As defined in the Immigration and Refugee Protection Act, foreign nationals are individuals who are not citizens or permanent residents of Canada.
2. Foreign Entities: Any corporation incorporated outside of Canada is considered a foreign corporation. Additionally, even if incorporated in Canada, a corporation is considered a foreign corporation if it is controlled by:

1. • Foreign national(s);
   • foreign corporation(s); or
   • other Canadian corporations which are themselves ultimately controlled by foreign entities.

For the purpose of the NRST, “control of a corporation” includes both direct and indirect control.

1. Taxable Trustees: A taxable trustee means a trustee of a trust where:
   • at least one of the trustees is a foreign entity; or
   • the trust has at least one beneficiary who is a foreign entity. This applies even if none of the trustees are foreign.

WHAT PROPERTIES ARE SUBJECT TO THE TAX?

The NRST applies to the transfer of “designated land”, which is land that contains 1-6 single family residences. If the property has mixed uses, the NRST applies only to the value of the consideration allocated to the residential portion of the property.

The NRST does not apply to other types of land such as:

• land containing multi-residential rental apartment buildings with more than six units;
• agricultural land; or
• commercial or industrial land

CALCULATING THE TAX – THE VALUE OF CONSIDERATION

The NRST is applied to the full value of consideration for a conveyance. The “value of consideration”, as defined in the Land Transfer Tax Act, is broad and not limited to the purchase price listed in the agreement of purchase and sale. It is the total monetary value involved in a conveyance, including:

• The gross sale price or any monetary consideration exchanged or promised;
• the monetary value of any liabilities assumed by the purchaser; and
• any monetary value of benefits transferred by the buyer as part of the conveyance arrangement.

Importantly, the NRST applies to the full value of consideration even if a foreign national, foreign entity, or taxable trustee acquires a less-than-100% interest in the property.

 KEY STAGES OF IMPLEMENTATION

1. April 21, 2017 – March 29, 2022: The NRST became effective on April 21, 2017, and does not apply retroactively to agreements of purchase and sale made before that date. It was initially set at 15% and applied solely to residential properties located within the Greater Golden Horseshoe (GGH) region. The region was chosen due to its particularly high real estate demand and corresponding affordability issues.
2. March 30, 2022 – October 24, 2022: On March 30, 2022, the geographical scope of the NRST was expanded to cover all of Ontario and the rate was increased to 20%.
3. October 25, 2022 – Present: The rate was increased to 25%.

TRANSITIONAL PROVISIONS:

Transitional provisions may apply which allow the application of the rules that were in effect on the date of the agreement (i.e. and agreement of purchase and sale), rather than the date the real estate transaction closes. However, for those provisions to apply, the land cannot be conveyed to a foreign entity or taxable trustee other than the purchaser or assignee (and their spouses). Otherwise, the 25% rate will apply.

EXEMPTIONS

Certain situations are exempt from the NRST, including:

• Purchases by nominees on behalf of Canadian citizens or permanent residents;
• acquisitions through inheritance; or
• refugees and other protected persons.

REBATES

NRST rebates may be available if certain conditions are met. These include situations where the purchaser of the property:

• Becomes a citizen or permanent resident of Canada within four years of the purchase;
• works full-time in Ontario for at least one year after the purchase; or
• is an international student enrolled full-time for at least two years in an approved Ontario school and physically present in Ontario for 240 days per year.

NRST VS. FEDERAL FOREIGN BUYER BAN

The NRST is distinct from the federal government’s Prohibition on the Purchase of Residential Property by Non-Canadians Act, which was extended another two years, to January 1, 2027. The federal ban has its own set of criteria and operates separately. It is possible for an individual or entity to be exempt from the federal ban but still be subject to the NRST.

For more information on that legislation, please see our article here.

DOES THE NRST APPLY TO YOU?

It is crucial to understand if and how the NRST affect your purchase. If you think it applies to you, or if you have questions, please contact one of our real estate lawyers.

This article is current as of March 26^th, 2024, and it is intended for general information purposes only. It is not intended to provide legal advice and should not be considered legal advice. Readers with concerns about how this affects particular situations or transactions should obtain the independent review and advice of legal counsel.

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