When do you need to pay Non-Resident Speculation Tax?

Canada offers great opportunities for millions of immigrants relocating to the country annually. Building a life in a new country often involves investing in real estate. However, to stabilize the real estate market, the Provincial Government implemented a taxation measure known as Non-Resident Speculation Tax (NRST). In this post, we will talk about what NRST is and different types of transactions it applies to.

WHAT IS NON-RESIDENT SPECULATION TAX?

Here is the official description of who NRST applies to from Provincial Government’s website:

The NRST applies to foreign entities or taxable trustees who purchase or acquire residential property in the Ontario.

Next question to ask is: “Who falls under the definition of a foreign entity or taxable trustee?” Short answer, it is anyone who is not a citizen or a permanent resident of Canada. Long answer is easier understood through an infographic which can be seen below.

The NRST comes into effect when there is an acquisition of a residential property in Ontario also called “designated land”. Let’s go through the kinds of residential property triggers the tax. Designated land includes land which contains at least one but no more than 6 single-family homes. That could be detached, semi-detached, townhome, condominium as well as duplexes, triplexes, fourplexes, and sixplexes. In addition, homes like cottages trigger the tax even if they can be occupied for only part of the year. Zoning of the land is irrelevant un determining whether it contains a single-family home. However, the tax is not triggered for homes located on agricultural land which can be classified in the farm class. What if the land in question contains multi residential rental apartment buildings with more than six units, agricultural land, commercial land, or industrial land? Then NRST is not triggered.

Many buildings in Ontario are zoned as mixed-use with both residential and commercial components to them. If that is the case, the NRST will only be payable on the portion of the land used solely for residential purposes.

Now that we know who the NRST applies to, let’s talk numbers. The NRST applies to the value of consideration of designated land, and it is not prorated based on the share that a non-resident acquires. For example, if designated land is transferred to 2 people as Tenants in Common with 50%-50% interest split, and only one of which is a non-resident, the NRST is payable passed on 100% of the value of consideration, not 50%.

Before March 29, 2022, NRST rate was 15% and the tax was applicable only for homes purchases in the Greater Golden Horseshoe Region (GGH).

After March 29, 2022, the tax rate was increased to 20%, and the tax was made to apply to purchases of real estate by non-residents anywhere in Ontario. On October 25, 2022, NRST rate was increased once more to 25%.

Lastly, the NRST applies to unregistered disposition of land (for example, acquisition of a leasehold interest). However, the rebates of NRST are only available for the registered acquisitions of land.

The NRST is payable at the time of registration of transfer of title by your real estate lawyer.

NRST EXEMPTIONS

There is a handful of exemptions available to non-residents purchasing property in Ontario. It is important to note that if the transferee (the person to whom the land in transferred to) is a trustee, no exemptions can be applied for.

NOMINEE EXEMPTION

Foreign nationals in the Ontario Immigrant Nominee Program may be able to apply for NRST exemption if the following criteria are satisfied:

1. The foreign national is nominated under the Ontario Immigrant Nominee Program (nominee) at the time of the purchase or acquisition,
2. The foreign national has applied or certifies that they will apply to become a permanent resident of Canada before the expiration of their nominee certificate
3. If the foreign national holds the property with any other transferees, those transferees must be individuals who are Canadian citizens, permanent residents of Canada, nominees or protected persons, and
4. All transferees must certify that they will occupy the property as their principal residence.

PROTECTED PERSON (REFUGEE) EXEMPTION

Foreign nationals holding protected person status may be able to apply for NRST exemption if the following criteria are satisfied:

1. The foreign national is a protected person on whom refugee protection is conferred under section 95 of the Immigration and Refugee Protection Act (Canada),
2. If the foreign national holds the property with any other transferees, those transferees must be individuals who are Canadian citizens, permanent residents of Canada, nominees or protected persons, and
3. All transferees must certify that they will occupy the property as their principal residence.

SPOUSAL EXEMPTION

Foreign nationals in certain spousal arrangements may be able to apply for NRST exemption if the following criteria are satisfied:

1. The foreign national is a spouse of a Canadian citizen, permanent resident of Canada, nominee, or protected person,
2. Each spouse is a transferee named in the conveyance,
3. If the foreign national and their spouse hold the property with any other transferees, those transferees must be individuals who are Canadian citizens, permanent residents of Canada, nominees or protected persons, or the spouse of one of the transferees listed above.
4. All transferees must certify that they will occupy the property as their principal residence.

The definition of spouse, for NRST and LTT purposes, is defined in section 29 of the Family Law Act and 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 parents of a child as set out in section 4 of the Children’s Law Reform Act.

LAND TRANSFER TAX (LTT) EXEMPTIONS

Where LTT is not payable, generally, this exemption would also apply to the NRST.

NRST REBATES

For transfers of title occurring after March 29, 2022, only the Permanent Resident Rebate is available. As mentioned above, the rebate is not available in a situation where the transferee in a transaction is a taxable trustee. To qualify for the rebate, the foreign national must first pay the NRST and then satisfy the following criteria:

1. become a permanent resident of Canada within four years from the date of the purchase or acquisition,
2. hold the property alone or with their spouse (as defined above) only, and
3. occupy the property, along with their spouse, if applicable, as their principal residence for the duration of the period that begins within 60 days after the date of purchase and ends when they make an application for the rebate or the rebate conditions have been met, whichever is later.

It is important to note that if the transferees are spouses of one another, only one must become a Permanent Resident for an exemption to apply. The application for the rebate must be submitted within 90 days of becoming a Permanent Resident of Canada.

For transfers completed within the GGH in accordance with agreements of purchase and sale entered into before March 29, 2022, the foreign national may be able to qualify for the NRST rebate under two additional programs:

1. International Student NRST Rebate
2. Foreign National Working in Ontario NRST Rebate

The applications for the above programs must be submitted on or before March 31, 2025, or within 4 years after the NRST became payable (whichever is earlier). All the criteria of a program must be satisfied for a foreign national to qualify for a rebate. A foreign national cannot mix the criteria of the two programs together (i.e. be a student for a year and work in Ontario for a year).

INTERNATIONAL STUDENT NRST REBATE

To qualify for this NRST rebate, a foreign national must first pay the NRST and

1. Be enrolled full-time ( Enrolled in at least 60% or 40%, depending on whether the individual has a disability, of what the approved institution considers to be a full course load for the academic year.) for at least two continuous years starting from the date of purchase of the home in an “approved institution”, as outlined in Ontario Regulation 70/17 of the Ministry of Training, Colleges, and Universities Act, and
2. Hold the property alone or with their spouse (as defined above) only, and
3. Occupy the property, along with their spouse, if applicable, as their principal residence for the duration of the period that begins within 60 days after the date of purchase and ends when they make an application for the rebate or the rebate conditions have been met, whichever is later.

The ministry allows 30-day concession from the date of purchase to become enrolled in an approved institution. Enrolment in an approved institution prior to the purchase of the home, does not count towards the two-year enrolment qualifying period.

FOREIGN NATIONAL WORKING IN ONTARIO NRST REBATE

To qualify for this NRST rebate, a foreign national must first pay the NRST and

1. Be employed full-time in Ontario under a valid work permit for a continuous period of one year starting from the date of purchase of the house. 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.
2. Hold the property alone or with their spouse (as defined above) only, and
3. Occupy the property, along with their spouse, if applicable, as their principal residence for the duration of the period that begins within 60 days after the date of purchase and ends when they make an application for the rebate or the rebate conditions have been met, whichever is later.

The ministry allows 30-day concession from the date of purchase to begin full-time employment under a valid work permit. Any full-time employment prior to the purchase of the home, does not count towards the one-year qualifying period.

NON-RESIDENT PURCHASING BAN

Federal Government has implemented a new measure to prevent foreign nationals from purchasing residential real estate in Canada for a period of two years, starting January 1, 2023. It is important to note that if the agreement of purchase and sale was entered into before January 1, 2023, the ban does not apply.

There are exemptions available for foreign nationals looking to purchase residential real estate in Canada. The following groups of people will be exempt from the two-year ban:

1. Refugees.
2. Individuals who purchase residential property with their spouse or common-law partner if the spouse or common-law partner is eligible to purchase residential property in Canada.
3. Temporary residents in Canada who satisfy conditions prescribed in the Future Regulations. The Consultation Paper indicated that students and foreign workers who meet specified criteria might be eligible.
4. Other classes of persons prescribed by the Future Regulations. The Consultation Paper indicated that there would be exemptions for any persons to whom indigenous rights under Section 35 of the Constitution Act, 1982 apply.

The regulations surrounding acquisition of real estate with their never-ending exceptions will continue to be difficult to comprehend for a person not versed in the legal jargon. I really hope that this post made things a little clearer. However, if you have any questions, do not hesitate to email me at irina@davylaw.ca.