Ontario announced a 15% tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe ("GGH") by individuals who are not citizens or permanent residents of Canada and by foreign corporations ("foreign entities") and certain taxable trustees. The new Non-Resident Speculation Tax ("NRST") is part of a package of measures introduced to address the skyrocketing prices for residential real estate. The NRST will apply in addition to the general land transfer tax in Ontario.

The NRST will be effective as of April 21, 2017; however, the tax will not apply to binding Agreements of Purchase and Sale signed on or before April 20, 2017.

Entities Subject to the NRST

The NRST applies to "foreign entities" or "taxable trustees" who purchase or acquire residential property in the GGH.

A "foreign entity" is either a foreign national or a foreign corporation.

A "foreign national" is an individual who is not a Canadian citizen or permanent resident of Canada (as defined in the Immigration and Refugee Protection Act (Canada)).

A "foreign corporation" is a corporation that is one of the following:

  • not incorporated in Canada;
  • incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange; or
  • is controlled directly or indirectly by a foreign entity.

A "taxable trustee" is a trustee that is one of the following:

  • a foreign entity holding title in trust for beneficiaries; or
  • a Canadian citizen, permanent resident of Canada or a corporation holding title in trust for foreign entity beneficiaries.

The NRST will not apply when a person purchases or acquires residential property as a trustee of a mutual fund trust, real estate investment trust or specified investment flow-through trust. In addition, refugees and nominees under the Ontario Immigrant Nominee Program will not be subject to the NRST. Ontario has also announced that a NRST rebate will be available for eligible individuals who subsequently attain citizenship or permanent resident status within four (4) years of the date of the purchase or acquisition, as well as certain international students and certain foreign nationals working in Ontario for a continuous one-year period since the purchase or acquisition date.

Types of Property Subject to the NRST

The NRST will apply to transfers of land that contain at least one (1) and not more than six (6) single-family residences (e.g., detached and semidetached houses, townhouses and condominiums). The NRST does not apply to multi-residential apartment buildings with more than six (6) units. In the case where there is a purchase of multiple condominium units, each unit would be considered land containing one (1) single-family residence.

The NRST does not apply to other types of land such as agricultural land, commercial land or industrial land.

The NRST will apply to the following geographic areas: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.

Application

The 15% NRST applies on the value of the consideration for the residential property. Where the land transfer includes both residential property and another type of property, the NRST applies on that portion of the value of the consideration that is attributable to the residential property. The NRST will also apply to an unregistered disposition of a beneficial interest in a residential property. The NRST will apply to the value of the consideration for a transfer of residential property if any one (1) of the transferees is a foreign entity or taxable trustee. Accordingly, if the transfer of residential property is made to three (3) transferees, one (1) of whom is a foreign entity that acquires a one-third (1/3) share in the property, the NRST will apply to 100% of the value of the consideration for the transfer. In addition, each transferee is jointly and severally liable for any NRST payable. If a foreign entity or taxable trustee does not pay the NRST, the other transferees will be required to pay the tax even if they are Canadian citizens or permanent residents of Canada.

Payment of the NRST

All transfers of residential property registered on or after April 21, 2017 must contain a statement expressly acknowledging that consideration has been given to the application of the NRST. Registrants will be required to provide one (1) of the following two (2) statements:

  • the NRST does not apply to the transfer; or
  • the NRST applies to the transfer and has been paid to the Ministry of Finance as confirmed by the applicable receipt number.

Taxpayers reporting unregistered dispositions of land to the Ministry of Finance (Ontario) will be required to expressly acknowledge in a covering letter that consideration has been given to the application of the NRST and whether or not it is payable on the reported transaction. It can be expected that the potential application of the NRST will be a matter that will need to be addressed by the solicitor acting for the purchaser of residential property located in the GGH. It will be necessary to obtain appropriate verification from the purchaser whether or not the purchaser is a foreign entity or taxable trustee. As a practical matter, if the transaction is subject to NRST, it will be necessary to arrange for pre-payment of the tax so as to allow for the electronic registration of title on the intended closing date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.