New Regulations on Foreign Buyer's Tax in Ontario

Wangchun Ye

(A lawyer in Ontario)

Effective from October 25, 2022, the newly introduced Ontario Non-Resident Speculation Tax (NRST) has sparked heated discussions. Many clients have come to our firm for consultation, so I will address some of the key concerns below:

1. What are the main changes in the new regulations?

The main changes in the new regulations are the following three aspects:

(a) Expanded applicability: The scope has been widened from the Greater Golden Horseshoe Region of Ontario to the entire province of Ontario.

(b) Increased tax rate: The tax rate has been raised from the previous 15% to 20%.

(c) Reduction in rebate scope: The rebates for international students and work permit holders have been eliminated. Now, only those who obtain Canadian permanent residency (PR Card) within 4 years of purchasing a property are eligible to apply for a rebate.

2. What is the scope of applicable properties?

The Ontario Non-Resident Speculation Tax applies only to residential properties and does not apply to commercial real estate, farms, or industrial land. If a property has both commercial and residential uses, the non-resident speculation tax applies only to the residential portion (which needs to be assessed for its value).

3. Who are subject to the Non-Resident Speculation Tax?

The applicable parties for the Non-Resident Speculation Tax are divided into two main categories: first, foreign companies or individuals; and second, taxable trusts. If there is at least one trustee in a trust who is a foreign company or individual, the trust is required to pay the Non-Resident Speculation Tax. Additionally, even if all trustees in the trust are Canadian residents, if at least one of the beneficiaries is a foreign company or individual, the trust is still subject to the Non-Resident Speculation Tax. However, the tax does not apply to mutual fund trusts, real estate investment trusts, and specified investment flow-through trusts as defined by tax law, as these trusts are not considered taxable trustees.

4. Who are exempt from paying the Non-Resident Speculation Tax？

Three categories of individuals can be exempt from paying taxes:

(a) Those who have been nominated through the Ontario Immigrant Nominee Program (nominee) at the time of purchasing the property.

(b) Refugees granted asylum.

(c) One of the spouses is a Canadian citizen or permanent resident, and both of them are registered as

joint property owners and reside there as primary residence. Spouses do not necessarily have to be legally married. Spouses also include common-law spouses who have lived together for over three years or have children together.

Additionally, situations where land transfer tax can be exempted or deferred also apply to the Non-Resident Speculation Tax. For example, transfers between spouses do not require payment of land transfer tax or the Non-Resident Speculation Tax.

5. How to calculate the Non-Resident Speculation Tax when purchasing property jointly with a Canadian citizen?

Assuming four individuals jointly purchase a property valued at 2 million Canadian dollars, with each person holding a 25% share. Among them, three individuals have Canadian citizenship, and only one person is a foreign national. In this case, the Non-Resident Speculation Tax is not only applicable to the 25% share of the foreign national. It is important to note that it is fully applicable to 100% of the property value. This means all four individuals are liable to pay the Non-Resident Speculation Tax. Calculated based on the 2 million value, the total Non-Resident Speculation Tax payable would be $400,000. Additionally, all four individuals hold joint liability, meaning if one individual fails to pay, the other three are obligated to pay his part.

6. When to pay the Non-Resident Speculation Tax ?

On the day of property transfer closing, payment is made from the lawyer's trust account. Clients need to deposit the funds into the lawyer's trust account in advance.

7. After paying the Non-Resident Speculation Tax, do I still need to pay the land transfer tax?

Yes. The Non-Resident Speculation Tax is an additional fee imposed specifically on foreign buyers, while other closing costs are charged as usual.

8. What are the specific conditions for tax refunds?

Tax refunds require simultaneous satisfaction of the following conditions：

（1）Obtain permanent residency in Canada within four years from the date of purchasing the property (if the property is registered under both spouses' names, only one person needs to obtain permanent residency in Canada to be eligible for the tax refund);

（2）The property is registered under the applicant's sole name or registered jointly with their spouse;

（3）Move into the house within 60 days of purchase and reside there until the date of application or the date when the refund conditions are met.

The application must be submitted within 90 days from the date of obtaining permanent residency in Canada. The time of obtaining permanent residency in Canada is not necessarily the date you receive the PR Card. The following two documents can prove that you have obtained permanent residency in Canada:

• a Confirmation of Permanent Residence document, signed and dated by an immigration officer, or

• a letter from IRCC advising that the application for permanent resident status is complete, that the individual is a permanent resident of Canada.

REMINDER: Do not wait until you receive the PR Card to apply for the tax refund, as you may miss the deadline.

9. When will the new regulations take effect? What about contracts signed before?

The new regulations took effect on March 30, 2022. They are not retroactive, so contracts for property purchases (an agreement of purchase and sale) or assignments of such contracts signed before this date would be governed by the previous policy. However, it's important to note that if a pre-construction purchase contract is signed before March 29, 2022 (inclusive), and later assigned to a foreign buyer, that foreign buyer will be subject to the Non-Resident Speculation Tax according to the new regulations.