Non-Resident Withholding Tax – Interest Income – A Toronto Tax Lawyer Analysis

Introduction – Ontario Non-Resident Speculation Tax

The Ontario non-resident speculation tax applies when real property located in the greater golden horseshoe region in Ontario is purchased by a foreign entity or taxable trustee. The greater golden horseshoe region is a group of cities, counties, and regional municipalities located in southern Ontario. Notably, Toronto, Hamilton, Guelph, and Barrie are all situated in the greater golden horseshoe region.

In this context the term “foreign entity” means either a foreign national or a foreign corporation. A foreign national is an individual who is neither a citizen of Canada nor a permanent resident of Canada. A foreign corporation is a corporation not incorporated in Canada or any corporation controlled by one or more:

• foreign national,
• corporation incorporated outside of Canada, or
• corporation that would, if each share of the corporation’s capital stock that is owned by a foreign national or by a corporation not incorporated in Canada were owned by a specific hypothetical person, that person would control the corporation.

A “taxable trustee” is the trustee of a trust with at least one foreign entity as a trustee. A trust with no foreign entity trustees is a “taxable trustee” if immediately after real property is purchased by the trustee, a beneficiary of the trust who is a foreign entity holds a beneficial interest in the real estate. Mutual funds, real estate investment trusts, and SIFT trusts are specifically excluded from being taxable trustees.

When the Ontario non-resident speculation tax applies to a transaction, the non-resident speculation tax is charged when the conveyance effecting the transfer to a foreign entity or taxable trustee is tendered for registration. Every person receiving an interest in the property in the conveyance is jointly and severally liable for the non-resident speculation tax. The amount of the tax is 15% of the value of the consideration provided in exchange for the property.

Note that the amount of tax owing is not proportional to the size of the interest acquired in the real estate by the foreign entity or taxable trustee. A transaction where a foreign national acquires 5% of a property and a Canadian citizen acquires the remaining 95% results in the same amount of non-resident speculation tax as if the foreign national had acquired 100% of the property. There are however several exemptions and rebates that can provide relief to taxpayers who would otherwise need to pay Ontario non-resident speculation tax.

Permanent Resident Rebate – Ontario Non-Resident Speculation Tax

There is a full rebate available to some individuals who were foreign nationals at the time they purchased a property but whom were subsequently granted permanent resident status by Immigration, Refugees and Citizenship Canada. Individuals intending to apply for the rebate must still pay the non-resident speculation tax at the time they purchase property. If a rebate application succeeds, the individual will receive a full refund of the tax paid plus interest at a rate specified by the Land Transfer Tax Act.

In order for the rebate to be available to an individual, that individual must be granted permanent resident status within four years of the transaction to purchase the property closed. To be eligible for the rebate the individual must occupy the property he or she purchased within sixty days of the purchase transaction closing.

The rebate is also only available if the purchase transaction is structured in one of two ways. The first way is if the individual applying for the rebate is the only person receiving an interest in the property when the purchase transaction closes. The second way is if the only persons receiving interests in the property when the purchase transaction closes are the individual applying for the rebate and that individual’s spouse.

Rebate Application Process – Ontario Non-Resident Speculation Tax

To apply for a rebate, you must submit a written application for the rebate to the Ontario Ministry of Finance which sets out the information required for the Ministry of Finance to determine whether you are eligible for the rebate. The rebate application must be made before the ninety-first day after you or your spouse became a permanent resident of Canada. No application can made later than four years and ninety days after the non-resident speculation tax became payable.

Disputing Rebate Decisions – Ontario Non-Resident Speculation Tax

If the Ontario Ministry of Finance rejects your application for a rebate it will issue a statement of disallowance. If you wish to dispute the Ministry of Finance’s decision, you can do so by filing a notice of objection with the Ministry of Finance within one hundred and eighty days of the mailing or personal service date of the statement of disallowance.

If the Ontario Ministry of Finance rejects your objection to its rebate decision, you can appeal that decision to the Ontario Superior Court of Justice. To appeal, you must file a notice of appeal with the Superior Court of Justice within ninety days of the mailing date of the Ministry of Finance’s written notice to you of its decision regarding your objection.

Tax Tips – Permanent Resident Rebate for Ontario Non-Resident Speculation Tax

If you are a foreign national considering purchasing real estate in Ontario and relying on the permanent resident rebate, you should consult an experienced Toronto tax lawyer before making the purchase. The conditions for the rebate to be available are complex and can have counter intuitive results. For example, the rebate is not available if a property is purchased jointly by a foreign national who subsequently becomes a permanent resident and a Canadian citizen who is not the spouse of the foreign national. In addition, the process for applying for and disputing rebates is complex. Seeking a rebate without the assistance of an expert Toronto tax lawyer may result in irreversible errors.