A Canadian Tax Lawyer’s Guide to Ontario Foreign Homebuyer Tax

The Ontario Foreign Homebuyer Tax is a one-time 20% province-wide tax on non-resident homebuyers. Officially named the Non-Resident Speculation Tax (NRST), it took effect on 30 March 2022 as a purported governmental response to the lack of housing supply and rising costs of home ownership in Ontario. This is an addition to the Ontario Land Transfer Tax that generally applies to the purchase of residential properties, which is calculated based on the value of the purchased properties.

First introduced in 2017, the original 15% Non-Resident Speculation Tax (NRST) only applied to the residential properties located in the Greater Golden Horseshoe Area. With the new regulation coming into effect, the expanded Foreign Homebuyer Tax is now applicable to any Ontario residential properties purchased by non-resident homebuyers.

Who Is Subject To The Foreign Homebuyer Tax?

The Ontario Foreign Homebuyer Tax applies to non-resident homebuyers, including taxable trustees, foreign corporations, or individuals who are foreign nationals that are ineligible for exemptions.

A taxable trustee means a trustee of a trust that either has at least one foreign trustee or a foreign beneficiary. A trustee or a beneficiary is deemed to be foreign if they are either a foreign national or a foreign corporation.

The term, foreign corporation, usually refers to a corporation that is not incorporated in Canada. It can also describe a Canadian incorporated business that is controlled by a foreign national or a corporation that is not incorporated in Canada.

Foreign nationals generally refer to those who are neither Canadian citizens nor permanent residents of Canada. However, exemptions may be available if certain criteria are met. For example, a nominee under the Ontario Immigrant Nominee Program or a refugee may be eligible for exemption from the Non-Resident Speculation Tax (NRST) if the purchased property is intended to be the buyer’s principal residence. Similarly, with the principal residence requirement, exemptions are also available to a spouse of a Canadian citizen, a permanent resident of Canada or an exempted foreign national. The definition of spouses, in assessing eligibility for the Ontario Foreign Homebuyer Tax, include married partners, unmarried common-law partners who have cohabited continuously for at least 3 years or a unmarried couple in a relationship of some permanence.

Type Of Properties That Are Subject To The Foreign Homebuyer Tax

Only residential properties purchased by non-resident homebuyer are subject to the Ontario Foreign Homebuyer Tax, which refers to all land and structures intended for private occupancy, whether on a permanent or temporary basis. The definition of residential property in Ontario includes condo and co-op units, certain types of time-share properties, group and retirement homes, seasonal homes like cottages and campgrounds, not-for-profit recreational facilities, some specific types of corporate-owned properties and properties that do not have seven or more self-contained units.

Examples of properties that are not for residential purposes include farmlands and properties owned by a religious organization, a non-profit organization, or a conservation authority. In some cases, land used as a golf course, a driving range or a ski resort may also be considered as non-residential properties.

Paying The Ontario Foreign Homebuyer Tax

The Ontario Foreign Homebuyer Tax or the Non-Resident Speculation Tax (NRST) is due at the time of closing, often paid through the buyer’s real estate lawyer. A buyer must pay this tax and submit relevant paperwork to the Ministry of Finance at least 15 business days prior to the date of conveyance, that is, the date when the property legally changes ownership. Otherwise, penalties and interests may be imposed on the purchaser even if he or she subsequently becomes eligible for a rebate.

The amount of tax payable is calculated solely based on the property value but not on the percentage of shares owned by homebuyers who are a non-resident of Canada. For example, even if the foreign buyer has only 10% shares in the property, the Foreign Homebuyer Tax is applied to the full value of the purchased property and not prorated to the partial ownership. In other words, as long as there is one buyer that can be subject to the Non-Resident Speculation Tax (NRST), all buyers will be responsible for the additional tax, equivalent to 20% of the property value.

Potential Availability Of Rebates

A rebate, commonly known as a refund for overpaid tax, may be available for a foreign national who becomes a permanent resident of Canada within four years from the date of the purchase. In addition, the individual must have held the property alone or only with their spouse as defined above. The property must have been designated as the individual’s principal residence for the duration of the period that begins within 60 days after the date of purchase and ends when the individual makes a rebate application or when the individual is eligible for the rebate. Note that rebate applications must be received by the Ministry of Finance within 90 days from the date the individual becomes a permanent tax resident of Canada. Interest of the rebate starts to accrue 40 business days after a complete rebate application is received by the Ministry of Finance.

Pro Tax Tips – Don’t Forget To Get Your Rebate!

A rebate paid with interest maybe available if you meet the following requirements after you have paid the Ontario Foreign Homebuyer Tax. First, the property must be solely owned by either you or both you and your spouse. Second, the property must have been your principal residence within 60 days after the date of purchase until the time you are seeking rebates. Third, you must have become a Canadian permanent resident within four years from the date of the purchase. Last but not least, you have 90 days to deliver your complete rebate application once you have become a Canadian permanent resident.

For more advice on the Ontario Foreign Homebuyer Tax/Non-Resident Speculation Tax (NRST), contact our expert Toronto tax lawyers.

FAQ

What Is The Non-Resident Speculation Tax (NRST) or the Ontario Foreign Homebuyer Tax?

The current Non-Resident Speculation Tax (NRST) or the Ontario Foreign Homebuyer Tax is a one-time 20% province-wide tax due at the closing time of property purchases if the buyer is or the buyers include a taxable trustee, a foreign national or a foreign corporation. This tax is an addition to the regular Land Transfer Tax, effective on 30 March 2022.

Who Can Be Subject To The Ontario Foreign Homebuyer Tax?

Taxable trustees, foreign nationals and foreign corporations, namely the non-resident homebuyers, are subject to the Ontario Foreign Homebuyer Tax. Some foreign nationals, such as refugees and Ontario nominees, can be exempted from the Ontario Foreign Homebuyer Tax if they are able to meet certain requirements. A spouse or a qualified common-law partner of a Canadian citizen, a Canadian permanent resident, an Ontario nominee or a refugee may also be eligible for the exemption.