Non-Resident Speculation Tax: The Hidden Cost of Canadian Real Estate

• 
  Brent Pickard
  Lawyer

Introduction 

In addition to the federal Prohibition on the Purchase of Residential Property by Non-Canadians Act, foreign residents attempting to purchase residential land in Ontario are subject to the provincial Non-Resident Speculation Tax (NRST). The NRST is applied on top of the standard Land Transfer Tax when applicable land is transferred to a foreign resident. 

This blog post seeks to answer three main questions regarding the NRST. First, when does the NRST apply? Second, how do you calculate the NRST? Third, are there any potential exemptions to the NRST? Finally, if you pay the NRST, could you be eligible for a rebate?   

When Does the NRST Apply? 

The NRST only applies to transfers of designated land to foreign nationals, foreign companies, or taxable trustees. Foreign nationals are any individuals that are not Canadian citizens or permanent residents. Similarly, taxable trustees include any trust that has at least one trustee or beneficiary that qualifies as a foreign national, so long as the type of trust is not exempted. Mutual fund trusts, Real Estate Investment Trusts, and SIFT trusts established under section 132(6), 122.1(1), and 122.1(1) of the Income Tax Act are exempted from the NRST. 

Determining whether a company qualifies as a “foreign company” is more complex than determining if an individual or trust qualifies as a foreign entity. Any companies incorporated outside of Canada qualify as a foreign corporation. Companies incorporated inside Canada may also qualify as a foreign corporation if they are controlled by a foreign national, a corporation incorporated outside of Canada, or a corporation that has stock owned by a foreign national or a corporation controlled by a foreign national. For the purpose of determining national status, “control” includes both de jure control (where a foreign national or corporation owns enough voting rights to determine the Board of Directors) and de facto control (where a foreign national or company has the right to effect the Board of Directors or can influence the shareholders to effect the board of directors on their behalf). 

Designated land is any parcel of land with at least one building containing at least one family residence unit and less than seven family residence units (e.g. land including a single detached home, two duplexes, etc.). Buildings with more than seven family residence units (e.g. an apartment building with twelve floors each containing eight units) is not designated land for the purposes of the NRST. If a piece of land transferred contains more than seven residential units in total contained across multiple buildings that each have less than seven family resident units (e.g. a property with nine residential units total contained in three triplexes), the land is still subject to the NRST. Similarly, if land with a residential and non-residential use as a single transaction, the NRST will only apply to the land that has a residential use. 

If the NRST does apply to a land transfer transaction, failing to properly pay this tax may result in a fine and/or imprisonment. If multiple parties buy designated land together and any of the parties are foreign entities, all of the purchasing parties, regardless of national status, are jointly and severely responsible to pay the full NRST on the transfer. If the property purchased is a registered disposition, the NRST must be paid through Teraview. If the property is an unregistered disposition, the NRST must be paid through filing a Return on the Acquisition of a Beneficial Interest in Land form within 30 days of obtaining the property. Teraview must be used if the purchaser wishes to claim a disposition from the NRST. 

How do I Calculate the Tax? 

The NRST is calculated by applying the proper rate to the value of the consideration for the transfer. Which rate is applicable depends on the location of the property and the date that the agreement of sale was entered into: 

• If the agreement was entered into on or after October 25, 2022, the rate is 25% regardless of where the property is located. 
• If the agreement was entered into on or between March 30 and October 24, 2022, the rate is 20% regardless of where the property is located. 
• If the agreement was entered into before March 30, 2022 and the property is located in the Golden Horseshoe Region, the rate is 15%. 
• If the agreement was entered into before March 30, 2022 and the property is located outside of the Golden Horseshoe Region, the transfer is not subject to the NRST. 

The Golden Horseshoe region includes Haldimand County, the Regional Municipality of Niagara, The County of Brant, the City of Hamilton, the Regional Municipality of Waterloo, the County of Wellington, the Regional Municipality of Halton, the Regional Municipality of Peel, the County of Dufferin, the County of Simcoe, the City of Toronto, the Regional Municipality of York, the City of Kawartha Lakes, the County of Peterborough, and the County of Northumberland, and any cities physically contained within these areas, including the Cities of Brantford, Guelph, Barrie, Orillia, and Peterborough. 

Once the rate of the NRST has been determined, it must be applied on the value of the consideration of the transfer. The value of consideration is dependent on the property’s purchase price, any outstanding liabilities, the benefits conferred, and the cost of any upgrades. Alternatively, the value of consideration will match the fair value if:  

• the property is transferred as part of a lease that exceeds 50 years;  
• the property is transferred from a corporation to one or more shareholders; or  
• land is transferred to a corporation in exchange for corporate shares. 

For further assistance with calculating the value of consideration for any property purchased, please contact the offices of McKenzie Lake Lawyers LLP. 

Example 

Sherman is a British citizen who has been living in Canada for three months. He is unmarried and does full-time remote work for a UK-based employer, meaning he is not a permanent resident.  

He enters an agreement to purchase a single, detached home in Tillsonburg on May 15, 2023. Because he is purchasing land with one family residence unit after October 25, 2022, Sherman will be subject to the NRST at a rate of 25% even though he bought outside of the Golden Horseshoe.  

Sherman then determines that the value of consideration for his new home is $1,200,000. 

0.25 𝑥 1,200,000 = 300,000

Sherman will need to pay $300,000 for this transaction’s NRST. 

Exemptions and Rebates  

Some foreign nationals will be exempt from the NRST. To be eligible for an exemption, the purchaser must certify that they will occupy the property as their principal residence and, if they purchase the property with another person, their co-purchaser(s) cannot be subject to the NRST. Additionally, the purchaser must: 

• be a member of the Ontario Immigration Nominee Program that has applied to become a permanent resident prior to the expiration of their nominee certificate; or 
• have refugee protection conferred on them under section 95 of the Immigration and Refugee Protection Act; or 
• be a spouse (under section 29 of the Family Law Act) of, continually habituate for 3 or more years with, or be in a continual relationship while having a child with a Canadian citizen that is also named in the transfer. 

Additionally, exemptions from the Land Transfer Tax can be applied to exempt a transfer from the NRST. Examples of transactions that are potentially exempt from the Land Transfer Tax include transferring to your spouse, transferring land from an individual to a family business, and transferring agricultural land to a family member. 

Declaring an exemption to the NRST is typically done at the time of acquisition of property with the help of a lawyer.

Similarly, individuals may obtain a rebate for the NRST if all of the following conditions are met: 

• the applicant obtains permanent resident status within four years of purchasing or acquiring the property; 
• the property is held by the exclusively by the applicant or the applicant and their spouse; 
• the applicant and their spouse (if applicable) occupy the property as their principal residence from 60 days after the purchase until the apply for the rebate or meet the rebate conditions (whichever is later); and 

• the applicant applies for a rebate within 90 days of becoming a permanent resident. 

Rebates are also available exclusively for land bought in the Golden Horseshoe Region on or before March 29, 2022 if the following conditions are met: 

• the applicant must be enrolled for a continuous, two-year period at an “approved institution” listed under Regulation 70/17 of the Ministry of Training, Colleges, and Universities Act, or the applicant must have engaged in at least 30 hours of paid work per week and amassed at least 1,560 hours of paid work across a continuous 12-month period while holding a valid work permit; 
• the property is held by the exclusively by the applicant or the applicant and their spouse; 
• the applicant and their spouse (if applicable) occupy the property as their principal residence from 60 days after the purchase until they apply for the rebate or meet the rebate conditions (whichever is later); and 
• the application is submitted within 4 years of the NRST becoming payable or by March 31, 2025 (whichever comes first). 

To obtain a rebate, the purchaser must file an Ontario Land Transfer Tax Refund/Rebate Affidavit and attach any of the following supporting documentation that applies: 

• for all applications,  
  • a copy of the registered transfer; 
  • a copy of the agreement of purchase and sale and any and all assignments and schedules; 
  • proof of payment of the Land Transfer Tax and NRST; 
  • proof of occupancy within 60 days of purchase; 
• if necessary to demonstrate the value of the consideration,  
  • a copy of the statement of adjustments; 
  • any appraisals or alternative documents used to determine the land’s value; 
• if the rebate is based on obtaining permanent residence status, a permanent residence card and confirmation of permanent residence or alternative documentation confirming permanent residence status; 
• if the rebate is based on enrollment at an educational institution, proof of enrollment for the two-year period; and 
• if the rebate is based on the number of hours worked, a copy of the valid work permit and a letter of employment confirming the necessary hours to obtain a rebate have been obtained. 

Alternatively, if there was an overpayment of NRST, a refund may be obtained by submitting the following documentation: 

• for all applications,  
  • a copy of the registered transfer; 
  • a copy of the agreement of purchase and sale and any and all assignments and schedules; 
  • a completed “Authorizing or Cancelling a Representative” form for each transferee; 
  • a properly completed Land Transfer Tax Affidavit; 
• if necessary to demonstrate the value of the consideration,  
  • a copy of the statement of adjustments; 
  • any appraisals or alternative documents used to determine the land’s value; and 
• any other documents necessary to calculate the value of the consideration. 

For any questions regarding this article or additional questions regarding the NRST, please contact the offices of McKenzie Lake Lawyers LLP.

This article was written by Lawyer, Brent Pickard and Summer Student, Garrett Van Lowe. For additional information, please do not hesitate to contact brent.pickard@mckenzielake.com. 

If you require assistance with any legal matter, speak to a lawyer at McKenzie Lake Lawyers LLP by calling (519) 672-5666.