Introduction – Ontario Non-Resident Speculation Tax
The Ontario non-resident speculation tax applies when real estate located in the greater golden horseshoe region in Ontario is acquired by a foreign entity or taxable trustee. The greater golden horseshoe region is a collection of cities, counties, and regional municipalities located in southern Ontario. Notably, Toronto, Hamilton, Guelph, and Barrie are all located in the greater golden horseshoe region.
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.
The term "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 also a "taxable trustee" if immediately after real estate is acquired 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 not taxable trustees.
When the Ontario non-resident speculation tax applies to a transaction, the amount of the tax is equal to 15% of the value of the consideration provided in exchange for the land. 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.
Nominee Exemption – Ontario Non-Resident Speculation Tax
There is a full exemption available to some foreign nationals who are Ontario nominees and who acquire real estate in Ontario and would otherwise be subject to the Ontario non-resident speculation tax. The Ontario immigration nominee program is a program run by the government of Ontario in partnership with the government of Canada which facilitates foreign nationals with skills relevant to Ontario's economic development and labour market becoming permanent residents of Canada. The government of Ontario has established a number of different categories of nominees within the program with different criteria, including categories for foreign nationals with a full time job offer in Ontario, foreign nationals with a graduate degree from an Ontario university, and foreign nationals looking to start a new business in Canada. To become a nominee, a foreign national must submit an application to the government of Ontario and have that application be granted by the government of Ontario. Foreign nationals who are nominated can then apply for permanent residence status with the Government of Canada.
The Ontario nominee exemption to the non-resident speculation tax requires that:
- The foreign national acquiring an interest in real estate is nominated under the Ontario nominee program;
- Any other persons acquiring an interest in the real estate in the same transaction are individuals who are either Canadian citizens, permanent residents of Canada, Ontario nominees, or protected persons;
- All the individuals acquiring interests in the real estate in the transaction certify that they will occupy the real estate as their principal residence; and
- The Ontario nominee foreign national has applied to become a permanent resident of Canada or certifies that he or she will apply to become a permanent resident of Canada
A protected person is a foreign national on whom refugee protection has been conferred on under section 95 of the Immigration and Refugee Protection Act.
Tax Tips – Nominee Exemption to Ontario Non-Resident Speculation Tax
If you are a foreign national considering purchasing real estate in Ontario and relying on the Ontario nominee, you should consult an experienced Toronto tax lawyer before making the purchase. The conditions for the exemption to apply are complex and can have counter intuitive results. For example, the exemption does not apply if a property is purchased jointly by an Ontario nominee foreign national and a Canadian citizen when the Ontario nominee plans to live in the property as his or her permanent residence and the Canadian citizen does not plan to live in the property. It is also worth noting that the exemption is available only for foreign nationals nominated under the Ontario nominee program and not the nominee programs administered by other Canadian provinces.