15% Non-Resident Speculation Tax

15% Non-Resident Speculation Tax

The NRST is a 15 per cent tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe Region (GGH) by individuals who are not citizens or permanent residents of Canada or by foreign corporations (foreign entities) and taxable trustees.  The NRST applies in addition to the general land transfer tax in Ontario.

 

Effective date
The NRST is effective as of April 21, 2017. Binding agreements of purchase and sale signed on or before April 20, 2017, and not assigned to another person after April 20, 2017, are not subject to the NRST.

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 corporation or a foreign national.

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

  1. A corporation that is not incorporated in Canada.
  2. A corporation, the shares of which are not listed on a stock exchange in Canada, that is incorporated in Canada and is controlled, directly or indirectly in any manner whatever, within the meaning of section 256 of the Income Tax Act (Canada), by one or more of the following:
    i. a foreign national
    ii. a corporation that is not incorporated in Canada
    iii. a corporation that would, if each share of the corporation’s capital stock that is owned by a foreign national or by a corporation described in paragraph 1 were owned by a particular person, be controlled, directly or indirectly in any manner whatever, within the meaning of section 256 of the Income Tax Act (Canada), by the particular person.

A permanent resident means a person who has acquired permanent resident status and has not subsequently lost that status under section 46 of the Immigration and Refugee Protection Act (Canada). A foreign national, as defined in the Immigration and Refugee Protection Act (Canada), is an individual who is not a Canadian citizen or permanent resident of Canada.

A taxable trustee means a trustee of:

a trust with at least one trustee that is a foreign entity, or a trust with no foreign entity trustees if a beneficiary of the trust is a foreign entity.

Taxable trustee does not include a trustee acting for the following types of trusts:

  • A mutual fund trust within the meaning of subsection 132 (6) of the Income Tax Act (Canada).
  • A real estate investment trust as defined in subsection 122.1 (1) of the Income Tax Act (Canada).
  • A SIFT trust as defined in subsection 122.1 (1) of the Income Tax Act (Canada).

Types of property subject to the NRST
The NRST applies to the transfer of land which contains at least one and not more than six single family residences. Examples of land containing one single family residence include land containing a detached house, a semi‑detached house, a townhouse or a condominium unit. In a situation involving the purchase of multiple condominium units, each unit would be considered land containing one single family residence. Examples of land containing more than one single family residence that are subject to the tax include land containing duplexes, triplexes, fourplexes, fiveplexes and sixplexes.

The NRST does not apply to other types of land such as land containing multi‑residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land.

The NRST applies on the value of the consideration for the residential property. If the land transferred includes both residential property and another type of property, the NRST applies on the portion of the value of the consideration attributable to the residential property. For example, if the purchase price of the transaction is $1,000,000 and contains one single family residence with a value of the consideration of $400,000, and commercial land with a value of the consideration of $600,000, the 15 per cent NRST would apply to only the $400,000 portion.

General application
The 15 per cent NRST applies to the value of the consideration for a transfer of residential property if any one of the transferees is a foreign entity or taxable trustee.

For example, if a transfer of residential property is made to four transferees, one of whom is a foreign entity that acquires a 25 per cent share in the land, the NRST would apply to 100 per cent of the value of the consideration for the transfer.

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. This applies even if the other transferees are Canadian citizens or permanent residents of Canada.

The NRST does 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.

The NRST applies to unregistered dispositions of a beneficial interest in residential property. This includes purchases and acquisitions of residential property where section 3 of the Land Transfer Tax Act is applicable.

Exemptions

An exemption from the NRST may be available in the following situations:

  • Nominee – A foreign national who is nominated under the Ontario Immigrant Nominee Program (nominee) at the time of the purchase or acquisition, and the foreign national has applied or certifies that they will apply to become a permanent resident of Canada
  • Protected person – A foreign national on whom refugee protection is conferred (protected person) under section 95 of the Immigration and Refugee Protection Act (Canada) at the time of the purchase or acquisition, or
  • Spouse – A foreign national who jointly purchases residential property with a spouse, who is a Canadian citizen, permanent resident of Canada, nominee or protected person.

    Under the Land Transfer Tax Act, spouse means “spouse” as defined in section 29 of the Family Law Act. This includes either of two persons who are married to each other, or who are not married to each other and who have cohabited,

    1. continuously for a period of not less than three years, or
    2. in a relationship of some permanence, if they are the natural or adoptive parents of a child.

To qualify for an exemption, the foreign national (and if applicable their spouse) must certify they will occupy the property as their principal residence.

The exemption applies if the Canadian citizen, permanent resident of Canada, nominee or protected person and his or her foreign national spouse purchased the property with other individuals who are Canadian citizens, permanent residents of Canada, nominees, or protected persons.

For the spousal exemption, multiple spousal units may also hold title, so long as one spouse is a Canadian citizen, permanent resident of Canada, nominee or protected person.

All transferees in the conveyance must also certify that they will occupy the property as their principal residence.

However, the exemption does not apply if the Canadian citizen, permanent resident of Canada, nominee, or protected person and his or her foreign national spouse purchased the property with another foreign national who is not a nominee or protected person. For example, if three parties purchase a property as follows:

  • one Canadian citizen and his or her foreign national spouse, and
  • a third party who is a foreign national (other than a nominee or protected person),

the exemption would not apply and NRST would be payable.

Exemptions in the Act and its regulations that apply to land transfer tax will also apply to the NRST. The deferral and cancellation of land transfer tax for intercorporate transfers between affiliated corporations will also apply to the NRST.

Rebates

A rebate of the NRST may be available in the following situations:

  • Foreign national who becomes a permanent resident of Canada – The foreign national becomes a permanent resident of Canada within four years of the date of the purchase or acquisition
  • International student – The foreign national is a student who has been enrolled full-time for a continuous period of at least two years from the date of purchase or acquisition in an “approved institution” (under section 8 of Ontario Regulation 70/17 of the Ministry of Training, Colleges, and Universities Act) at a campus located in Ontario. Full-time means enrolled in at least 60 per cent (if the individual does not have a disability) or 40 per cent (if the individual has a disability) of what the approved institution considers to be a full course load for the academic year, or
  • Foreign national working in Ontario – The foreign national has legally worked full-time under a valid work permit in Ontario for a continuous period of at least one year since the date of purchase or acquisition. Full-time means an employment position that requires no fewer than 30 hours of paid work per week over a 12 month period and no fewer than a total of 1,560 hours of paid work over that period.

To qualify for a rebate, the foreign national must exclusively hold the property, or hold the property exclusively with his or her spouse. The property must also have been occupied as the foreign national’s (and if applicable his or her spouse’s) principal residence for the duration of the period that begins within 60 days after the date of the purchase or acquisition.

Rebates must be applied for within four years after the day on which the NRST became payable, except for the rebate for a foreign national who becomes a permanent resident of Canada. The rebate for a foreign national who becomes a permanent resident of Canada must be applied for within 90 days of the foreign national becoming a permanent resident, and no application may be made more than four years and 90 days from the date the NRST became payable.

Supporting documentation will be required to substantiate all applications for rebates.

Source: Ontario Ministry Of Finance

 

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