Introduction - Ontario Non-Resident Speculation Tax
A taxpayer is subject to many types of taxes and the rules for each type of tax are laid out in a piece of legislation. In addition to the federal income taxes laid out in the Income Tax Act (the "ITA") a taxpayer is subject to provincial taxes. One particular type of provincial tax in Ontario is called a land transfer tax which applies, generally, when land (situated in Ontario) is acquired or a beneficial interest in land (situated in Ontario) is acquired. This article will discuss a new type of land transfer tax that applies to residential property located in the Greater Golden Horseshoe Region ("GGH") as defined by the Land Transfer Tax Act. This tax is called the Non-Resident Speculation Tax and applies in addition to the general land transfer tax in Ontario.
The Greater Golden Horseshoe Region: What is it?
The GGH is approximate 32,000 km2 and is an urban area in southern Ontario. The GGH is made up of the following cities, counties, and regional municipalities:
- City of Barrie;
- County of Brant;
- City of Brantford;
- Country of Dufferin;
- RM of Durham;
- City of Guelph;
- Haldimand County;
- RM of Halton;
- City of Hamilton;
- City of Kawartha Lakes;
- RM of Niagara;
- County of Northumberland;
- City of Orillia;
A regional municipality is denoted as "RM".
Ontario Non-Resident Speculation Tax: General Discussion
The land transfer tax changes were laid out in the Budget Measures Act (Housing Price Stability and Ontario Seniors' Public Transit Tax Credit), 2017. The changes received royal assent as of June 1, 2017 and have since come into force. The Non-Resident Speculation Tax is a product of changes made to the existing Land Transfer Tax Act.
Pursuant to the changes, an additional tax will be paid by every person who, on or after April 21, 2017, tenders for registration in Ontario a conveyance by which any designated land that is located within the specified region (the GGH) is conveyed to a foreign entity or a taxable trustee. The tax is 15% of the value of the consideration for the conveyance or an alternate rate of tax as prescribed by the Minister of Finance (the "Minister"). The tax is to be paid when the conveyance is tendered or before the conveyance is tendered for registration. In general terms, the rules impose a 15% tax on the consideration paid for land transfers of any designated land in the specified region to a foreign entity or taxable trustee.
The tax does not apply to all land transfers. Currently, as the Minister has the power to change the definition of "designated land," the tax only applies to land that contains one to six single family residences.
The terms "foreign entity" and "taxable trustee" also have definitions assigned to them by the legislation and will be explained in further detail below.
Important Definitions: "Foreign Entity," and "Taxable Trustee"
The tax applies to conveyances made to a foreign entity or a taxable trustee. A "foreign entity" means a foreign corporation or a foreign national. The definition of a "foreign national" for the purposes of this tax is taken from subsection 2(1) of the Immigration and Refugee Protection Act (Canada) and means a person who is not a Canadian citizen or a permanent resident.
A "foreign corporation" is a corporation not incorporated in Canada; however, the legislation also provides for another meaning. Under this second meaning a "foreign corporation" is a corporation, not listed on a Canadian stock exchange, incorporated in Canada that is controlled directly or indirectly by one or more of the following:
- A foreign national (i.e. not a Canadian citizen or permanent resident)
- A corporation not incorporated in Canada
- A 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 non-resident, be controlled, directly or indirectly in any manner whatever by the non-resident.
In the definition of "foreign corporation" the term "controlled" has the meaning assigned to it by section 256 of the ITA.
A "taxable trustee" means a trustee of a trust with a least one trustee that is a foreign entity. In addition, a trust with no foreign entity trustees is a "taxable trustee" if, immediately after the conveyance is tendered for registration, a beneficiary of a trust who is a foreign entity holds a beneficial interest in the designated land to which the conveyance relates but excludes trustees acting for the following types of trusts:
- a mutual fund trust within the meaning of subsection 132(6) of the ITA;
- a real estate investment trust as defined in subsection 122,1(1) of the ITA; and
- a SIFT trust as defined in subsection 122.1(1) of the ITA.
Depending on the facts surrounding the conveyance, determining whether the Non-Resident Speculation Tax tax applies may require a detailed analysis of any corporations or trustees that are transferees.
The law on Non-Resident Speculation Tax is subject to change as the Minister has the ability to make regulations that will effectively exempt certain categories of foreign nationals, spouses of foreign nationals, or foreign entities from the tax. The Minister also has the ability to make regulations that provide for tax rebates.
Please note that the current exemptions and rebates only apply to "foreign nationals" and do not apply to "foreign corporations".
Ontario Regulation 182/17 Tax Payable under Subsection 2(2.1) of the Act by Foreign Entities and Taxable Trustees made under the Land Transfer Tax Act currently provides for exemptions from the Non-Resident Speculation Tax. The exemptions exist for "nominees," "protected persons," and for conveyances to a foreign national and spouse.
Under the regulation, a "nominee" is a foreign national that has been nominated under the Ontario Immigrant Nominee Program while a "protected person" is a foreign national with refugee protection as conferred under section 95 of the Immigration and Refugee Protection Act (Canada).
Each of the three exemptions has different conditions that must be met; however, all exemptions require the transferee or transferees to occupy the land transferred as their principal residence.
Getting the tax back: Rebate Initiative
The regulations also speak to situations in which the Minister may rebate tax paid by a foreign national under subsection 2(2.1) of the Land Transfer Tax Act. Rebates are provided for foreign nationals that become permanent residents of Canada, to foreign nationals that are international students, and to foreign nationals working in Ontario.
All rebates require that the transferee must be a foreign national or, if there are two transferees, the foreign national and their spouse. All rebates also require that the land must be occupied by the transferee(s) as their principal residence on and after a date that is 60 days after the day the conveyance was tendered for registration.
In addition to the two necessary conditions above, a third condition must also be met:
- To qualify for the permanent resident rebate the foreign national must become a permanent resident within four years after the day the conveyance was tendered for registration;
- To qualify for the international student rebate, the foreign national must be enrolled full-time in an approved institution at a campus located in Ontario for a continuous period of two years after the day the conveyance was tendered for registration; or
- To qualify for the working in Ontario rebate, the foreign national must be employed under a valid work permit for at least a continuous period of one year after the day the conveyance was tendered for registration.
Tax Tips - Non-Resident Speculation Tax
Depending on your situation, it may be difficult to determine whether the Non-Resident Speculation Tax applies to you. Even if you determine that the tax does apply, there are other elements of the regime to consider.
While there are no breaks for conveyances to foreign corporations whether an exemption or rebate applies is something that should be considered by foreign nationals. In addition, applications to the Minister for rebates must be made within certain time limits and must set out all the information the Minster requires to determine whether the applicant is eligible for the rebate.
If you are considering making a conveyance in southern Ontario and you are unsure whether the Non-Resident Speculation Tax applies, contact one of our expert Canadian tax lawyers to discuss whether you must pay the tax, are exempt, or qualify for one of the rebates.
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.